Title: Accounting & Finance
Course: Demo 1

Q: Accounting allows businesses to communicate information about a company’s financial performance to:
- internal users
- external users
- the government
A: internal users; external users; the government

Q: In accounting, GAAP stands for:
- global authentic accounting practices.
- governance of American accounting processes.
- generally accepted accounting principles.
A: generally accepted accounting principles.

Q: The FASB (Financial Accounting and Standards Board) created a set of rules and guidelines for the reporting of financial information or Generally Accepted Accounting Principles (GAAP) that financial accountants must follow when preparing a company’s financial statements. Among the reasons that the GAAP were developed are to:
- make certain that the information in the statements is accurate
- allow stakeholders to make comparisons between the financial statements of different companies in the same industry
- control how much profit a company can report at the end of the fiscal year
A: make certain that the information in the statements is accurate; allow stakeholders to make comparisons between the financial statements of different companies in the same industry

Q: Accounting is more than simply calculating the net profit or loss from business operations. Accounting is actually a process that involves:
- measuring business activities.
- interpreting financial information.
- assigning responsibility for collecting financial information within an organization.
A: measuring business activities.; interpreting financial information.

Q: ________ provides individuals within an organization with the financial information needed to make good business decisions.
- financial accounting
- managerial accounting
- tax accounting
A: financial accounting; managerial accounting

Q: Managerial accountants:
- provide managers within the organization with reports to make good business decisions.
- provide information to managers in different business functions.
- create the company’s financial statements that are submitted to government agencies such as the Internal Revenue Service.
A: provide managers within the organization with reports to make good business decisions.; provide information to managers in different business functions.

Q: Financial accountants:
- provide information to external entities that allows them to evaluate business performance.
- summarize the company’s financial activities in a way that allows managers to make decisions.
- have a primary focus on providing managers within the organization with reports to make good business decisions.
A: provide information to external entities that allows them to evaluate business performance.; summarize the company’s financial activities in a way that allows managers to make decisions.

Q: Business owners use financial information prepared by financial accountants for decision making, but other stakeholders have an interest in being able to assess the financial health of the business. These stakeholders include(s):
- potential investors.
- employees.
- suppliers.
A: potential investors.; employees.; suppliers.

Q: Instead of following GAAP, companies outside the U.S. are more likely to follow the:
- World Bank guidelines for financial reporting.
- Financial Accounting Standards Board.
- International Financial Reporting Standards.
A: International Financial Reporting Standards.

Q: The ________ shows the income and expenses of a company over a period of time.
- balance sheet
- statement of cash flows
- income statement
A: income statement

Q: The accounting equation is:
- liabilities = assets + owners equity
- owners equity = assets + liabilities
- assets = liabilities + owners equity
A: assets = liabilities + owners equity

Q: The ________ provides a snapshot of the company’s financial position at a specific point in time.
- income statement
- statement of cash flows
- balance sheet
A: balance sheet

Q: The four financial statements a company is required to prepare according to GAAP are:
- income statement, corporate tax return, balance sheet, and statement of cash flows.
- income statement, statement of financial position, balance sheet, and statement of cash flow.
- income statement, balance sheet, statement of cash flow, and statement of owner’s equity.
A: income statement, balance sheet, statement of cash flow, and statement of owner’s equity.

Q: The balance sheet shows which types of accounts?
- assets
- liabilities
- owners equity
A: assets; liabilities; owners equity

Q: The accounting equation for a given point in time can be calculated using which financial statement?
- income statement
- statement of cash flows
- balance sheet
A: balance sheet

Q: The income statement shows which types of accounts?
- income
- expenses
- assets
A: income; expenses

Q: In order to calculate the net income from business operations a manager would apply which of the following equations?
- net income = liabilities + equity
- net income = debits – credits
- net income = total revenue – total expenses
A: net income = total revenue – total expenses

Q: Although a business has had record sales it is having a hard time paying the bills each month. As a manager you are uncertain why this is occurring and ask the financial accountant to explain this situation to you. When the accountant comes to your office they will bring which of the following financial statements as supporting documentation?
- the income statement
- the statement of owner’s equity
- the statement of cash flows
A: the statement of cash flows

Q: The ________ provides users of the financial statements with a reconciliation of the company’s beginning and ending equity accounts.
- income statement
- statement of cash flows
- statement of owner’s equity
A: statement of owner’s equity

Q: Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. At the end of the first quarter (three months of business), Eliza wants to see if she has made a profit so she makes an appointment to meet with her accountant. When she gets to the appointment, her accountant will review which of the following financial statements with Eliza?
- balance sheet
- statement of owner's equity
- income statement
A: income statement

Q: Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. There is an accounting firm located just down the street and Eliza is paying them to do all of her accounting. At the end of the first quarter (three months of business), Eliza has several questions about how things are going. If she wants to understand how much debt the business has right now, then she should look at the ________ that her accountant has prepared.
- the income statement
- the statement of owner’s equity
- the balance sheet
A: the balance sheet

Q: Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. There is an accounting firm located just down the street and Eliza is paying them to do all of her accounting. At the end of the first quarter (three months of business), Eliza has several questions about how things are going. If she wants to understand how much total cash has come into the business this quarter, then she should look at the ________ that her accountant has prepared.
- the income statement
- the statement of owner’s equity
- the statement of cash flows
A: the statement of cash flows

Q: Eliza has just opened a new business near campus that is a combination of a laundromat, a nail salon, and a tanning studio. There is an accounting firm located just down the street and Eliza is paying them to do all of her accounting. At the end of the first quarter (three months of business), Eliza has several questions about how things are going. If she wants to understand how much money she has put into the business so far, then she should look at the ________ that her accountant has prepared.
- the balance sheet
- the statement of cash flows
- the statement of owner’s equity
A: the statement of owner’s equity

Q: The formula for calculating the break-even point is:
- revenue minus expenses per unit.
- the point where profitability is achieved.
- fixed costs divided by the contribution margin per unit.
A: fixed costs divided by the contribution margin per unit.

Q: When a business owner is asked how the business is doing and she replies, “We are breaking even” what does this actually mean?
- The revenue earned for a period is less than costs incurred.
- The revenue earned for a period is more than costs incurred.
- The revenue earned and costs incurred for a period are equal.
A: The revenue earned and costs incurred for a period are equal.

Q: The break-even point for a business is:
- usually expressed in dollars or units sold
- the point where income is equal to expenses
- the point where profitability is achieved
A: usually expressed in dollars or units sold; the point where income is equal to expenses

Q: The table below shows the 12-month income statement for Jamie’s Car Wash. How many car washes must Jamie sell in order to break even?

Jamie's Car Wash
Income Statement for the period January 1, 2015 - December 31, 2015
Sales ($10 x 100,000 washes) | $1,000,000
- Variable Cost Per Wash ($6) | ($600,000)
Gross profit | $400,000
Operating expenses |
- Salaries | ($50,000)
- Rent | ($50,000)
Total Operating Expenses | ($100,000)
Net Income (Profit) | $300,000
- 100,000
- 30,000
- 25,000
A: 25,000

Q: The table below shows the 12-month income statement for Beach Town Jetski Rentals. The company has not yet reached its break-even point. What is the contribution margin for each Jet Ski rental?

Beach Town Jetski Rentals
Income Statement for the period January 1, 2015 - December 31, 2015
Sales ($325 x 500 daily rentals) | $162,500
- Variable Cost Per Rental ($64 gas and parts) | ($32,000)
Gross profit | $130,500
Operating expenses |
- Salaries | ($75,000)
- Rent and equipment | ($186,000)
Total Operating Expenses | ($261,000)
Net Income (profit or loss) | ($130,500)
- $325
- $389
- $261
A: $261

Q: The table below shows the 12-month income statement for Beach Town Jetski Rentals. The company has not yet reached its break-even point. How many daily jet ski rentals does the team need to break even?

Beach Town Jetski Rentals
Income Statement for the period January 1, 2015 - December 31, 2015
Sales ($325 x 500 daily rentals) | $162,500
- Variable Cost Per Rental ($64 gas and parts) | ($32,000)
Gross profit | $130,500
Operating expenses |
- Salaries | ($75,000)
- Rent and equipment | ($186,000)
Total Operating Expenses | ($261,000)
Net Income (profit or loss) | ($130,500)
- 10,000
- 261
- 1,000
A: 1,000

Q: A creditor, such as a bank, would review a company’s cash and other assets that can easily be converted into cash in order to determine its:
- liquidity.
- solvency.
- owner’s equity.
A: liquidity.; solvency.

Q: Which of the following external parties might analyze the company’s financial statements?
- investors
- regulators
- the company’s management team
A: investors; regulators

Q: In conducting financial analysis of the company, external parties often use:
- financial statements
- explanatory notes that accompany the financial statements
- specialized internal reports requested to support the analysis
A: financial statements; explanatory notes that accompany the financial statements

Q: When creditors that are making long-term loans to businesses, they will analyze the ratio of a company’s’ assets to its liabilities, in order to measure the company’s:
- liquidity.
- owner’s equity.
- long-term solvency.
A: long-term solvency.

Q: When a potential investor analyzes a company’s sales in the 4th quarter of 2015 compared to 4th quarter sales in 2014, 2013, and 2012, they are conducting:
- qualitative analysis.
- horizontal analysis.
- vertical analysis.
A: qualitative analysis.; horizontal analysis.

Q: When a regulator analyzes a company’s R&D spending, sales and marketing spending, and general administrative spending as a percentage of total revenue, they are conducting:
- qualitative analysis.
- horizontal analysis.
- vertical analysis.
A: vertical analysis.

Q: When a creditor analyzes a company’s revenue, spending, cash and debt over several years, comparing them to performance in 2008, they are conducting:
- comparative analysis.
- trend analysis.
- historical review.
A: comparative analysis.; trend analysis.

Q: ________ measures a company’s ability to pay its debts, while ________ measures the company’s ability to earn a profit.
- solvency tests : profitability tests
- cash flow ratios : owner’s equity
- liquidity ratios : profitability tests
A: liquidity ratios : profitability tests

Q: The company’s inventory turnover ratio:
- shows the number of times inventory is sold in a period.
- requires careful attention to the way that inventory is valued.
- is calculated as average sales divided by average inventory.
A: shows the number of times inventory is sold in a period.; requires careful attention to the way that inventory is valued.

Q: Which of the following statements are true about the current ratio?
- It defines how much of the company’s assets are available to pay current liabilities.
- It is calculated as current assets divided by current liabilities.
- A lower current ratio indicates that the company is less risky.
A: It defines how much of the company’s assets are available to pay current liabilities.; It is calculated as current assets divided by current liabilities.

Q: Which of the following statements are true about the contribution margin ratio?
- It is calculated as profit divided by sales.
- A higher contribution margin ratio indicates a more profitable company.
- It shows how much profit a company will make on each dollar of sales.
A: It shows how much profit a company will make on each dollar of sales.

Q: The acid-test (quick) ratio is different from the current ratio in that it:
- excludes inventories.
- emphasizes assets that are quickly and reliably turned into cash.
- measures liquidity.
A: excludes inventories.; emphasizes assets that are quickly and reliably turned into cash.

Q: Lid on It hat shop had $1.55 million in annual sales. During the same period its cost of goods sold was $620,000 and held average inventory of $100,000. What is the inventory turnover?
- 15.5
- 10.0
- 6.2
A: 6.2

Q: The Golden Braid Bookstore currently has $340,000 in cash, $280,000 in inventory, and $40,000 in accounts receivable. The company also has $65,000 in accounts payable, and $15,000 in other current liabilities. What is its current (or working capital) ratio?
- 4.75 : 1
- 4.25 : 1
- 8.25 : 1
A: 8.25 : 1

Q: The Golden Braid Bookstore currently has $340,000 in cash, $280,000 in inventory, and $40,000 in accounts receivable. The company also has $65,000 in accounts payable, and $15,000 in other current liabilities. What is its quick ratio?
- 8.25 : 1
- 4.25 : 1
- 4.75 : 1
A: 4.75 : 1

Q: Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its current (or working capital) ratio?
- 4.75 : 1
- 9 : 1
- 12 : 1
A: 12 : 1

Q: Act II Costumes currently has $120,000 in cash, $340,000 in inventory, and $20,000 in accounts receivable. The company also has $20,000 in accounts payable, and $20,000 in other current liabilities. What is its quick ratio?
- 12 : 1
- 9 : 1
- 3.5 : 1
A: 3.5 : 1

Q: Accurate reporting is critical to the accounting profession because many important financial and business decision are based on financial reports. As such, unethical accounting practices can result in:
- civil lawsuits
- criminal lawsuits including jail time
- professional sanctions
A: civil lawsuits; criminal lawsuits including jail time; professional sanctions

Q: Ethical behaviors:
- show the willingness and ability to distinguish between right and wrong.
- promote trustworthiness.
- are always tied to legal issues.
A: show the willingness and ability to distinguish between right and wrong.; promote trustworthiness.

Q: The purpose of this legislation is to reduce unethical corporate behavior, protect investors from the possibility of fraudulent accounting activities by corporations, and decrease the likelihood of future corporate scandals. It is the:
- Securities and Exchange Commission (SEC).
- Generally Accepted Accounting Principles (GAAP).
- Sarbanes-Oxley Act (SOX).
A: Sarbanes-Oxley Act (SOX).

Q: Which of the following items are included in The Code of Professional Ethics of the American Institute of Certified Public Accountants:
- place public trust above personal gain
- be impartial and intellectually honest
- weigh all sides of decisions
A: place public trust above personal gain; be impartial and intellectually honest

Q: Which of the following are actual repercussions of accounting fraud cited in the readings?
- an executive served jail time
- a public company was forced to write off millions of dollars in bad expense
- a major U.S. accounting firm was forced to lay-off thousands of employees
A: an executive served jail time; a public company was forced to write off millions of dollars in bad expense; a major U.S. accounting firm was forced to lay-off thousands of employees