Download Learning Objectives

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Learning Objectives:
14.1 Describe the important of accounting and financial information.
14.2 Differentiate between managerial and financial accounting.
14.3 Identify the six steps of the accounting cycle.
14.4 Explain the purpose of the three key financial statements.
14.5 Describe the short – and long-term financing options available to businesses.
14.6 Discuss the use of ratio analysis to evaluate organizational performance.
Quick answer key:
Question #
Multiple Choice
True/False
1
C
True
2
B
False
3
A
False
4
D
True
5
B
True
6
C
False
7
C
True
8
A
False
9
B
False
10
C
True
11
A
True
1
12
C
False
13
C
True
14
B
False
15
B
True
16
A
True
17
D
False
18
B
False
19
C
True
20
D
False
21
B
True
22
A
False
23
A
False
24
B
True
25
B
True
26
D
False
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Multiple Choice Questions:
1. How do first level managers use accounting and financial information?
A)
B)
C)
D)
to summarize financial transactions
to manage the accounting function
to make decisions and evaluate operational performance
to make financial investments
Learning Objective 14.1
Answer – C
2. Which is true of managerial and financial accounting?
A)
B)
C)
D)
managerial is performed by managers; financial is performed by finance
managerial is used by insiders and financial is used by outsiders
managerial is organization-wide; financial is department-wide
managerial is monthly; financial is annual
Learning Objective 14.2
Answer – A
3. How does a bookkeeper differ from an accountant?
A) a bookkeeper records transactions; an accountant classifies data
according to accounting standards and principles
B) a bookkeeper records and classifies data; an accountant prepares financial
statements
C) a bookkeeper assembles source documents; an accountant records and
classifies data
D) a bookkeeper classifies data; an accountant records data
Learning Objective 14.2
Answer – A
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4. Which is a financial statement that reports and organization’s financial condition as of a
specific date?
A)
B)
C)
D)
income statement
statement of cash flows
statement of owners equity
balance sheet
Learning Objective 14.4
Answer – D
5. Which statement best describes debits and credits?
A)
B)
C)
D)
debits are recorded on the right and credits are recorded on the left
debits add value to an account and credits remove value from an account
debits are assets and credits are liabilities
debits are journal entries and credits are ledger entries
Learning Objective 14.2
Answer – B
6. Which of the following are revenues?
A)
B)
C)
D)
payroll, taxes, and insurance
depreciation, rent and utilities
sales, interest, and service fees
supplies, advertising, and salaries
Learning Objective 14.2
Answer – C
7. Which is a measure of liquidity?
A)
B)
C)
D)
total assets
retained earnings
working capital
current liabilities
Learning Objective 14.2
Answer – C
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8. What financial concept is used to determine the feasibility of an investment decision by
computing the present value of future cash flows?
A)
B)
C)
D)
time value of money
cost of capital
financial ratios
liquidity
Learning Objective 14.6
Answer – A
9. Which is one of the most convenient and least expensive forms of short-term borrowing
for a business?
A)
B)
C)
D)
credit cards
trade credit
secured loan
factoring
Learning Objective 14.5
Answer – B
10. How do managers use financial ratios?
A)
B)
C)
D)
to validate a company’s financial statements
to verify the accuracy of accounting data
to evaluate organizational performance
to set financial objectives for the organization
Learning Objective 14.6
Answer – C
11. The daily inflow of funds to an organization is known as?
A)
B)
C)
D)
accounts receivable
accounts payable
current assets
current liabilities
Learning Objective 14.2
Answer – A
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12. Which term best describes the activities of buying and selling goods, paying bills, and
purchasing supplies?
A)
B)
C)
D)
financial accounting
financial statements
financial transactions
financial analysis
Learning Objective 14.2
Answer – C
13. Which statement most accurately describes an annual report?
A) it is a financial document for internal use only
B) it is a financial document for external use only
C) it discloses the financial condition, progress and expectations of an
organization
D) it summarizes the budget expenditures of an organization
Learning Objective 14.2
Answer – C
14. In accounting, a value added to an account is called?
A)
B)
C)
D)
owner’s equity
a debit
liability
a credit
Learning Objective 14.2
Answer – B
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15. Which financial statement would be the best one to use to evaluate the investment
potential of an organization?
A)
B)
C)
D)
statement of cash flows
income statement
trial balance
balance sheet
Learning Objective 14.4
Answer – B
16. Which financial statement analyzes changes in an organization’s cash for a stated
period of time to determine the organization’s net cash position?
A)
B)
C)
D)
statement of cash flows
income statement
trial balance
balance sheet
Learning Objective 14.4
Answer – A
17. Which term best represents what a business owns?
A)
B)
C)
D)
cash
inventory
liabilities
assets
Learning Objective 14.2
Answer – D
18. The accounting equation is the basis for preparing which financial statement?
A)
B)
C)
D)
income statement
balance sheet
statement of cash flows
retained earnings statement
Learning Objective 14.4
Answer – B
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19. If gross sales = $500,000, sales returns = $10,000, and sales discounts = $5,000, what
are net sales?
A)
B)
C)
D)
$495,000
$490,000
$485,000
$515,000
Learning Objective 14.6
Answer – C
20.What is the first step in the accounting cycle?
A)
B)
C)
D)
prepare financial statements
analyze financial statements
record transactions in journals
analyze source documents
Learning Objective 14.3
Answer – D
21. What is the last step in the accounting cycle?
A)
B)
C)
D)
prepare financial statements
analyze financial statement
record transactions in journals
analyze source documents
Learning Objective 14.3
Answer – B
22. Which equation best represents gross profit?
A)
B)
C)
D)
net sales less cost of goods sold
gross sales less inventory
revenues less expenses
assets less liabilities
Learning Objective 14.6
Answer – A
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23. What differentiates current assets from long term assets?
A) current assets can be converted to cash in less than a year and long term
assets can be converted to cash in a year or more
B) current assets can be converted to cash in less than a year and long term assets
can be converted to cash in 5 years or more
C) current assets can be converted to cash in less than 5 years and long term
assets can be converted to cash in 5 years or more
D) current assets are cash and long term assets are equipment
Learning Objective 14.2
Answer – A
24. What is an intangible asset?
A)
B)
C)
D)
items that are permanent, such as land and buildings
items of value that don’t have a physical form, such as copyrights
items that have a useful life of more than 5 years
items that can be depreciated, such as equipment
Learning Objective 14.2
Answer – B
25. Why is money received today worth more than money received in the future?
A)
B)
C)
D)
global economics causes money to lose value over time
money can be invested today and earn interest
the discount rate depreciates money over time
because net present value is always greater than net future value
Learning Objective 14.6
Answer – B
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26. When assessing an investment decision, what does the capitalization rate tell a manger?
A)
B)
C)
D)
cap rate tells the value of an investment
cap rate tells the useful life of an investment
cap rate tells the salvage value of an investment at the end of its life
cap rate tells how fast the investment will pay for itself
Learning Objective 14.6
Answer – D
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True/false Questions:
1. Accounting is the recording, classifying, summarizing, and interpreting of financial events
and transactions in an organization.
Learning Objective 14.1
Answer – True
2. Managerial accounting provides information and analysis for use outside an organization
by stakeholders.
Learning Objective 14.2
Answer – False
3. Financial Accounting Standards Principles (FASP) are followed by US accountants to
record and report financial information.
Learning Objective 14.2
Answer – False
4. A debit is a value added to an account while a credit is a value removed from it.
Learning Objective 14.2
Answer – True
5. The five classifications of financial accounts are assets, liabilities, equity, income and
expenses.
Learning Objective 14.2
Answer – True
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6. Depreciation is the systematic write-off of the cost of a tangible asset over the course of
a year.
Learning Objective 14.2
Answer – False
7. Cost of goods sold (CGS) represents the cost of merchandise used to generate sales or
the raw materials used to produce goods for sale, including freight and storage charges.
Learning Objective 14.2
Answer – True
8. Net income is determined by subtracting revenues from gross profit.
Learning Objective 14.2
Answer – False
9. Assets are what a business owes to others (debts).
Learning Objective 14.2
Answer – False
10. Accounts receivable are monies owed to an organization by customers for credit sales.
Learning Objective 14.2
Answer – True
11. The second step in the accounting cycle is to record transactions in journals.
Learning Objective 14.3
Answer – True
12. An accountant is an individual who records financial transactions for a business.
Learning Objective 14.3
Answer – False
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13. A financial statement is a summary of financial transactions that have occurred over a
period of time.
Learning Objective 14.4
Answer – True
14. Statement of cash flows is a financial statement that reports a firm’s financial conditions
at a specific time.
Learning Objective 14.4
Answer – False
15. An income statement is often referred to as the profit and loss statement.
Learning Objective 14.4
Answer – True
16. Time value of money is the concept that money received today is worth more than
money received in the future.
Learning Objective 14.4
Answer – True
17. Present value rate is the minimum rate of return used in calculations of the time value of
money.
Learning Objective 14.4
Answer – False
18. Discount rate is the return on investment at a certain point in time.
Learning Objective 14.4
Answer – False
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19. Trade credit is a form of short-term borrowing where goods received today are paid for in
30 or 45 days.
Learning Objective 14.5
Answer – True
20.A secured loan is a loan that doesn’t require any collateral.
Learning Objective 14.5
Answer – False
21. Factoring is the process of selling accounts receivable for cash.
Learning Objective 14.5
Answer – True
22. Debt financing is money raised from within the firm, from operations or through sales of
ownership in the firm.
Learning Objective 14.5
Answer – False
23. Current ratio is a measure of an organization’s financial security to repay short-term debt
from cash, marketable securities, and accounts receivables.
Learning Objective 14.6
Answer – False
24. The debt to equity ratio is a measure of long term liquidity that compares an
organization’s debt to equity.
Learning Objective 14.6
Answer – True
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25. Net profit margin is a measure of performance that represents net profits relative to
sales.
Learning Objective 14.6
Answer – True
26. Return on equity is a measure of performance that represents the profit earned by a
company for each share of common stock outstanding.
Learning Objective 14.6
Answer – False
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Short Answer questions:
1. Explain the difference between managerial accounting and financial accounting.
Answer – Managerial accounting provides information and analysis to managers to
assist them in decision making and evaluating organizational performance. Financial
accounting generates information about the financial health of an organization for use
outside of the organization.
2. What are the five classifications of financial accounts?
Answer – The five classifications of financial accounts are assets, liabilities, equity,
income and expenses.
3. What are the six steps of the accounting cycle?
Answer – The six steps to the accounting cycle are:
1)
2)
3)
4)
5)
6)
Analyze source documents
Record transactions in journals
Transfer journal entries to ledger
Take a trial balance
Prepare financial statements
Analyze financial statements
4. Identify and list two short-term and two long-term borrowing sources for businesses.
Answer – Applicants answers will vary, but could include:
•
Short-Term Sources – trade credit, secured loan, unsecured loan, line of credit,
factoring.
•
Long-Term Sources – debt financing, equity financing, leverage, cost of capital
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5. Explain the difference between liquidity, debt, profitability, and activity ratios.
Answer - Liquidity ratios measure an organization’s ability to turn assets into cash to
pay its short-term debts or liabilities. Debt ratios measure the degree to which an
organization relies on borrowed funds in its operations. Profitability ratios measure how
effectively an organization’s managers are using resources to achieve profits. Activity
ratios show how effectively management is turning over inventory and assets in order to
produce revenue.
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