BUSI 1301 Ch. 8

The assets of Prosian Italia, a marble and granite company, amount to $400 million, and its liabilities add up to $180 million. Based on the accounting equation, Prosian Italia's owners' equity is equal to _____.

$220 million

The owners' equity of Senesta Corp., an event management company, adds up to $23 million, and its liabilities add up to $17 million. Based on the accounting equation, the assets of Senesta Corp. are worth _____.

$40 million

_____ is a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period.

Budgeting

A firm's operating budget represents the firm's overall plan of action for a specified time period.

False

In the accounting equation, assets are equal to liabilities minus the owners' equity.

False

Which of the following statements is true of activity-based costing (ABC)?

It is more complex than the direct labor method.

In the context of budget preparation, which of the following is an advantage of using bottom-up budgeting?

Middle managers are likely to be highly motivated to achieve budgetary goals.

__________is the profit or loss a firm earns in the time period covered by the income statement.

Net income

Gerald wants to find out the net income of his business for the last quarter. He deducts the cost of goods sold from the revenue earned during that period and then deducts the operating expenses from the gross profit. If Gerald decides to subtract the salary of his employees from the operating expenses before deducting the operating expenses from the gross profit, which of the following expenses would he be deducting?

Selling expenses

In the context of accounting, which of the following best defines cost?

The value of what is given up in exchange for something else

In the context of owners' equity, which of the following is true of retained earnings?

They are accumulated earnings reinvested in a company rather than being paid to the owners.

Alexis decides to check with his accountant as to how much money his company owes to the raw materials supplier. To determine this, Alexis should ask the accountant to provide him with the company's balance sheet.

True

In the context of balance sheets, resources owned by a firm are known as__________.

assets

The three kinds of basic financial statements that are prepared in financial accounting are:

balance sheet, income statement, and statement of cash flows.

In the context of balance sheets, accounts receivable is an example of__________.

current assets

Milora, a clothing company, purchases 50 sewing machines from a company called Quick Sew on credit. Milora is supposed to pay an amount of $76,000 to Quick Sew. This amount is due within a year of the date on the balance sheet. In this scenario, the amount of credit that Milora owes Quick Sew is referred to as Milora's _____.

current liability

In the context of balance sheets, the accounting equation tells us that the value of a firm's assets must be:

equal to the amount of financing provided by owners plus the amount provided by creditors to purchase those assets.

To give the company's stockholders, creditors, and other external stakeholders an accurate idea of the company's overall performance, Rowensport Corporation, a multinational company, releases statements that contain details of the company's profits and losses over the past five years. In this scenario, the company is most likely involved in _____.

financial accounting

In the context of budgeting, a flexible budget:

is designed to show the appropriate budgeted level of costs for each different level of sales.

Grydon Inc. has applied for a business loan in the United Bank. To best assess the loan case, the loan officer at the bank, Cerejo, decides to look at the company's net income. Cerejo will find this information in Grydon's _____.

profit and loss statement

Maurice, the supervising manager of a telecommunications company, requires detailed information about the expenses that the company incurred from its monthly operations in the last fiscal year. In this scenario, Maurice should refer to the _____.

profit and loss statement

Rolette Clemens is a financial institution that provides loans to businesses. It rejects a textile company's request for a loan after it reviews the value of the company's assets, liabilities, and owners' equity and finds them to be unsatisfactory. In this scenario, Rolette Clemens most likely analyzed the company's _____ to assess its financial condition.

balance sheet

In the context of budget preparation, the master budget of a firm organizes the _____ into a unified whole.

financial budget and the operating budget

The first stage in activity-based costing is to:

identify specific activities that create indirect costs and determine the factors that drive the costs of these activities.

In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing _____.

revenues