Test #1: Chapter #1

The cash held by a company at the end of the year is found on which of the following two statements? a.) balance sheet and income statement b.) balance sheet and statement of cash flows c.) income statement and statement of cash flows d.) statement of cash flows and statement of stockholders' equity

balance sheet and statement of cash flows

gross margin ratio

gross margin / sales (the higher, the better; percentage)

Assets minus liabilities

net assets

Building

property plant and equipment

Common stock

stockholders' equity

The statements of financial accounting standards, and other authoritative pronouncements that define what constitutes acceptable accounting practice for financial reporting are collectively referred to as: a.) SFAS b.) FASB c.) SEC d.) GAAP

GAAP

Financial accounting standards that define what constitutes acceptable accounting practice for financial reporting worldwide are referred to as: a.) SFAS b.) FASB c.) IFRS d.) GAAP

IFRS (keyword: worldwide; "I" stands for international)

A situation in which the money invested in a corporation is at risk but investors' personal possessions are not at risk if the business fails.

Limited Liability

The business entity eliminates the impact of unlimited liability for all the owners, does not limit the number of owners, and does not limit participation in the management of the firm.

Limited Liability Company

A partnership in which the individual partners are liable only for their own actions and the actions of those under their control.

Limited Liability Partnership

A partnership composed of one or more general partners and one or more limited partners; only the general partners' personal possessions are at risk if the business should fall.

Limited partnership

A situation whereby each partner has the power to act for all and legally obligate all partners.

Mutual agency

A business owned by two or more individuals whose personal possessions are at risk if the business fails.

Partnership

A small business corporation owned by no more than 75 individuals; profits are taxed at the individual level rather than the corporate level.

S Corporation

A business entity owned by one person whose personal possessions are at risk if the business fails.

Sole Proprietorship

The Report of the Independent Auditor is the opinion of the CPA firm that examined the financial statements of a company and states which of the following? a.) The financial statements are correct as reported. b.) The financial statements are fairly presented. c.) The financial statements are free from fraud. d.) The financial statements are presented fairly in accordance to GAAP.

The financial statements are presented fairly in accordance to GAAP.

The function of business responsible for providing the information used by other functional areas to perform their jobs is referred to as: a.) production and operations b.) human resources c.) accounting and information systems d.) marketing

accounting and information systems

Which of the following is not a correct relationship? a.) production function - determine cost of products manufactured b.) marketing function - advertising c.) finance function - borrow cash d.) human resource function - layoff employees e.) all are correct relationships

all are correct relationships

The rights to use resources that have expected future economic benefit.

assets

Which type of business may be owned by one individual? a.) corporation b.) sole proprietorship c.) partnership d.) both corporation and sole proprietorship

both corporation and sole proprietorship

The accounting concept requiring that an accounting system reflect information relating only to those economic events pertaining to a particular entity is the: a.) business entity concept b.) going entity concept c.) monetary unit concept d.) periodicity concept

business entity concept

quick ratio

cash + short term investments + receivables / current liabilities (the higher, the better)

A business entity that is legally separate and distinct from its owners.

corporation

accounts payable turnover and days

cost of goods sold / average accounts payable = turnover 365 / A/P turnover = days

inventory turnover and days

cost of goods sold / average inventory = turnover 36 / inventory turnover = days

An asset likely to be used or consumed in one year

current asset

1000 shares of Microsoft stock

current asset or investment

Cash

current assets

Interest receivable

current assets

Inventory

current assets

Note Receivable due in 60 days

current assets

Which of the following is the ratio for calculating the current ratio? a.) current assets / current liabilities b.) current assets / total liabilities c.) current liabilities / current assets d.) current assets / total sales

current assets / current liabilities

current ratio

current assets / current liabilities (the higher, the better)

Accounts payable

current liabilities

Interest payable

current liabilities

A measure of company liquidity; the relationship between current assets and current liabilities

current ratio

A measure of company solvency and its ability to meet its long-term obligations

debt to equity ratio

Interest expense

does not appear on balance sheet

Salary expense

does not appear on balance sheet

An amount incurred from using resources or services in an effort to generate revenues.

expense

The business function which is responsible for managing a company's capital resources is referred to as: a.) marketing b.) human resources c.) finance d.) operations

finance

The accounting concept which assumes that, absent any information to the contrary, the business will continue into the foreseeable future is the: a.) business entity concept b.) future entity concept c.) going concern concept d.) periodicity concept

going concern concept

Patent

intangible assets

Note receivable from customer due in 5 years

investment

The obligation to transfer economic resources to suppliers of goods and services at some point in the future

liability

Note payable (due in 10 years)

long-term liabilities

The business function designed to determine the wants and needs of consumers is referred to as: a.) marketing b.) finance c.) human resources d.) operations

marketing

Wal-Mart is an example of which of the following? a.) service firm b.) merchandising firm c.) manufacturing firm d.) producer firm

merchandising firm

The accounting concept which asserts that money is the common measurement unit for economic activity is the: a.) business entity concept b.) monetary unit concept c.) going concern concept d.) dollar-value concept

monetary unit concept

A company's total revenues les its total expenses for a period of time.

net income

an increase in the owners' equity as a result of the firm's ongoing operations

net income

return on owners' equity

net income / average owners' equity (the higher, the better; percentage)

return on investment ratio (ROI)

net income / average total assets (the higher, the better; percentage)

return on sales ratio

net income / sales (the higher, the better; percentage)

Represents the claims on the business to transfer the residual interest (net assets of the business) to the owners.

owners' equity

The accounting concept requiring that the profits of a business be determined at regular intervals throughout the life of the business is the: a.) business entity concept b.) going concern concept c.) monetary unit concept d.) periodicity concept

periodicity concept

Land

property plant and equipment

A measure of company profitability; the relationship between net income and sales

return on sales ratio

An amount earned from rendering services or transferring resources to customers.

revenue

accounts receivable turnover and days

sales / average accounts receivable = turnover 365 / A/R turnover = days

A law firm is an example of which of the following? a.) manufacturing firm b.) merchandising firm c.) service firm d.) performance firm

service firm

The financial statement designed to show the cash inflows and cash outflows of the company for a period of time.

statement of cash flows

the financial statement designed to show the changes to owners' equity during a specific time period

statement of owners' equity

If the Debt to Equity Ratio is greater than one it means: a.) the company is using debt more than owners' equity to finance its assets b.) the company has less debt than equity c.) the company has more debt than assets d.) the company is using more of its assets to finance its debt

the company is using more debt than owners' equity to finance its assets

Investors read the Independent Auditors' Opinion because: a.) they want to know if financial statements are mathematically correct b.) they want some assurance that the financial statements are fairly presented c.) they want to determine if the auditors found any fraud d.) they want to know if the auditor thinks the company is a good investment

they want some assurance that the financial statements are fairly presented

debt to equity ratio

total liabilities / total owners' equity (the lower, the better)

The Debt to Equity Ratio is measured with which of the following? a.) total liabilities / total assets b.) long-term liabilities / total stockholders' equity c.) total stockholders' equity / total liabilities d.) total liabilities / total stockholders' equity

total liabilities / total stockholders' equity