Question 1

The fundamental accounting equation states: Assets = ________.

Accepted Answer

A)   liabilities minus owners' equity
B)   liabilities plus receivables
C)   payables plus cash equivalents
D)   liabilities plus owners' equity

Question 2

Use the fundamental accounting equation to solve the following: Assets minus liabilities equals

Accepted Answer

A)   net income.
B)   gross margin.
C)   owners' equity.
D)   cash reserves.

Question 3

Ronnecker Construction has several trucks that are used in the business. Recently, the owners were told that even though the government permits the firm to depreciate the vehicles, it is not a deductible expense on the income statement.

Accepted Answer

A) True 
 B)False

Question 4

Assets are listed on the balance sheet in order of liquidity, with the most liquid assets listed first.

Accepted Answer

A) True 
 B)False

Question 5

Liabilities are reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 6

Harrison, a potential investor, is interested in both Barkatorium's balance sheet and income statement when evaluating whether or not to invest.

Accepted Answer

A) True 
 B)False

Question 7

Jeremy thinks his business will be successful as long as he just keeps his customers satisfied. He does NOT need to have a great deal of knowledge about accounting practices.

Accepted Answer

A) True 
 B)False

Question 8

The accounting profession is divided into 5 key working areas, two of which are

Accepted Answer

A)   auditing and managerial accounting.
B)   forecasting and logistical accounting.
C)   inventory control and budgeting.
D)   income accounting and expenditure accounting.

Question 9

General expenses include office salaries, rent, and insurance.

Accepted Answer

A) True 
 B)False

Question 10

When creating the income statement, which of the following statements is accurate?

Accepted Answer

A)   revenues, minus general operating expenses = gross profit.
B)   revenues, minus tax expense = gross profit.
C)   revenues, minus depreciation expense = gross profit.
D)   revenues, minus cost of goods sold = gross profit.

Question 11

Accounting involves both the recording and the interpreting of financial events.

Accepted Answer

A) True 
 B)False

Question 12

Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

Accepted Answer

FIFO stands for first-in, first-out. Thi...

Question 13

The purpose of a trial balance is to

Accepted Answer

A)   affirm whether the figures in the account ledgers are correct and balanced.
B)   prepare a mockup of a real balance sheet.
C)   review the income statement accounts.
D)   meet a reporting requirement of the Securities and Exchange Commission (SE
C)  .

Question 14

FIFO is a method of computing net cash flows by subtracting financial inflows from financial outflows.

Accepted Answer

A) True 
 B)False

Question 15

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

Accepted Answer

A) True 
 B)False

Question 16

________ is the accounting practice of recording each transaction in two places in the accounting journal.

Accepted Answer

A)   Double-entry bookkeeping
B)   Trial balancing
C)   Account matching
D)   Entry duplication

Question 17

The two major classes of operating expenses are current expenses and long-term expenses.

Accepted Answer

A) True 
 B)False

Question 18

A basic difference between managerial accounting and financial accounting is that managerial accounting

Accepted Answer

A)   adheres to rules set by the GASB, while financial accounting uses a different group of rules set by the FASB.
B)   involves the preparation of the balance sheet and income statement while financial accounting involves the preparation of the statement of cash flows.
C)   handles recording and classifying information about transactions that have no direct financial impact on the firm, while financial accounting handles the recording and classifying of information about transactions that do have a financial impact.
D)   provides information primarily intended for managers and others inside the company, while financial accounting provides information primarily intended for people outside the organization.

Question 19

Patents and copyrights are examples of intangible assets.

Accepted Answer

A) True 
 B)False

Question 20

When valuing items in inventory for financial reporting purposes, generally accepted accounting principles (GAAP) requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

Accepted Answer

A) True 
 B)False

Exam 17: Understanding Accounting and Financial Information

When creating the income statement, which of the following statements is accurate?

Correct AnswerverifiedShow Answer

FIFO is a method of computing net cash flows by subtracting financial inflows from financial outflows.

Correct AnswerverifiedShow Answer

The accounting profession is divided into 5 key working areas, two of which are

Correct AnswerverifiedShow Answer

Assets are listed on the balance sheet in order of liquidity, with the most liquid assets listed first.

Correct AnswerverifiedShow Answer

General expenses include office salaries, rent, and insurance.

Correct AnswerverifiedShow Answer

Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

Correct AnswerverifiedFIFO stands for first-in, first-out. Thi...View AnswerShow Answer

The best way for a firm to avoid serious cash flow problems is to sustain a rapid growth in sales.

Correct AnswerverifiedShow Answer

Harrison, a potential investor, is interested in both Barkatorium's balance sheet and income statement when evaluating whether or not to invest.

Correct AnswerverifiedShow Answer

The purpose of a trial balance is to

Correct AnswerverifiedShow Answer

Accounting involves both the recording and the interpreting of financial events.

Correct AnswerverifiedShow Answer

________ is the accounting practice of recording each transaction in two places in the accounting journal.

Correct AnswerverifiedShow Answer

Ronnecker Construction has several trucks that are used in the business. Recently, the owners were told that even though the government permits the firm to depreciate the vehicles, it is not a deductible expense on the income statement.

Correct AnswerverifiedShow Answer

Liabilities are reported on the income statement.

Correct AnswerverifiedShow Answer

The two major classes of operating expenses are current expenses and long-term expenses.

Correct AnswerverifiedShow Answer

A basic difference between managerial accounting and financial accounting is that managerial accounting

Correct AnswerverifiedShow Answer

Jeremy thinks his business will be successful as long as he just keeps his customers satisfied. He does NOT need to have a great deal of knowledge about accounting practices.

Correct AnswerverifiedShow Answer

Use the fundamental accounting equation to solve the following: Assets minus liabilities equals

Correct AnswerverifiedShow Answer

When valuing items in inventory for financial reporting purposes, generally accepted accounting principles (GAAP) requires firms to value the cost of goods sold by assuming that the items that have been in inventory the longest are the ones that are sold first.

Correct AnswerverifiedShow Answer

Patents and copyrights are examples of intangible assets.

Correct AnswerverifiedShow Answer

The fundamental accounting equation states: Assets = ________.

Correct AnswerverifiedShow Answer

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FIFO stands for first-in, first-out. Thi...
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