Question 1

A high debt-to-equity ratio indicates that the firm is relying heavily on debt, or is "highly leveraged."

Accepted Answer

A high debt-to-equity ratio means that the company has more debt than equity, which implies that the firm is relying heavily on debt financing. This increases the financial risk of the company and makes it highly leveraged.

Question 2

Which type of accounting addresses the needs of external stakeholders, including shareholders, creditors, and government regulators?
A) forensic accounting
B) managerial accounting
C) investigative accounting
D) financial accounting

Accepted Answer

Financial accounting addresses the needs of external stakeholders, including shareholders, creditors, and government regulators. It focuses on preparing financial statements that accurately report a company's financial performance and position.

Question 3

What are managers, shareholders, employees, and creditors?
A) They are people designated by the board of directors to review company documents.
B) They are all users of accounting information to assess a company's finances.
C) They are auditors of the health and well-being of a company.
D) They are all employees of a corporation.

Accepted Answer

Managers, shareholders, employees, and creditors are all users of accounting information to assess a company's finances. Managers use it for decision making, shareholders use it to assess their investment, employees use it to understand the company's financial health, and creditors use it to determine creditworthiness.

Question 4

The balance sheet is organized to reflect the accounting equation. What is the accounting equation?
A) Owners' Equity = Liabilities + Assets
B) Assets = Liabilities + Owners' Equity
C) Liabilities = Assets + Owners' Equity
D) Assets - Liabilities = Assets + Owners' Equity

Accepted Answer

The accounting equation is Assets = Liabilities + Owners' Equity. This means that the total assets of a company must be equal to the total of its liabilities and owner's equity. The balance sheet is organized to reflect this equation, with assets listed on one side and liabilities and owner's equity listed on the other side.

Question 5

Which companies are required to follow the IFRS?
A) private companies that trade on the stock exchange
B) public companies that trade on the stock exchange
C) other types of companies that do not trade on the stock exchange
D) all companies regardless of whether or not they trade on the stock exchange

Accepted Answer

Public companies that trade on the stock exchange are required to follow the IFRS. Private companies may choose to follow the IFRS, but it is not a requirement. Other types of companies may have their own accounting standards to follow, but they are not required to follow the IFRS.

Question 6

What process would provide shareholders or creditors with information about the overall financial performance of a firm?
A) accrual accounting
B) internal auditing
C) financial accounting
D) managerial accounting

Accepted Answer

Financial accounting is the process of preparing and presenting financial statements, such as an income statement and balance sheet, which provide information about the overall financial performance of a firm. These statements are made available to shareholders and creditors to help them make informed investment or lending decisions. Accrual accounting, internal auditing, and managerial accounting are all important aspects of accounting but do not provide the same level of overview and transparency as financial accounting.

Question 7

Which of the following is a system for recognizing, recording, organizing, summarizing, analyzing, and reporting information about the financial transactions that affect an organization?
A) accounting
B) bookkeeping
C) auditing
D) managerial finance

Accepted Answer

Accounting is the system for recognizing, recording, organizing, summarizing, analyzing, and reporting information about the financial transactions that affect an organization. Bookkeeping is a part of accounting that involves recording and organizing financial data, while auditing involves reviewing financial records to ensure accuracy. Managerial finance involves making financial decisions within an organization.

Question 8

The debt-to-asset ratio measures the extent to which a firm relies on debt financing by dividing total debt by total assets.

Accepted Answer

The statement is true as the debt-to-asset ratio measures the proportion of a firm's assets that are financed through debt.

Question 9

What is the body of principles that guides the financial accounting process used to create financial statements?
A) GAAP (Generally Accepted Accounting Practices)
B) IFRS (International Financial Reporting Standards)
C) IFAS (International Financial Accounting Standards)
D) GFAP (General Financial Accounting Practices)

Accepted Answer

The body of principles that guides the financial accounting process used to create financial statements is GAAP (Generally Accepted Accounting Practices). Option B, IFRS, is a set of international accounting standards, while option C, IFAS, is not a recognized system. Option D, GFAP, is not a recognized system.

Question 10

What has the accounting profession adopted to guide the practice of financial accounting in order to provide external shareholders with relevant, reliable, consistent, and comparable financial information?
A) Formal Accounting Rules and Procedures (FARP)
B) Standardized Accounting Procedures (SAP)
C) International Financial Reporting Standards (IFRS)
D) International Accounting Financial Rules (IAFR)

Accepted Answer

The accounting profession has adopted International Financial Reporting Standards (IFRS) as a set of standardized accounting rules and regulations that guide the practice of financial accounting. These standards ensure that financial information provided to external shareholders is relevant, reliable, consistent, and comparable across different companies and industries. FARP and SAP are not recognized or widely used accounting standards or procedures. IAFR is not a recognized accounting framework.

Question 11

For what purpose would employees be most likely to use their employer's accounting information?
A) developing their personal financial plan
B) calculating their hourly wage rate
C) evaluating the financial performance of the company and making the case for pay raises or bonuses
D) assessing dynamic marketplace conditions for employment opportunities

Accepted Answer

Employees would most likely use their employer's accounting information for evaluating the financial performance of the company and making the case for pay raises or bonuses. This information allows them to understand the company's profitability and financial health, which can impact their own compensation. Developing personal financial plans or calculating hourly wage rates would not require access to their employer's accounting information, and assessing dynamic marketplace conditions for employment opportunities would be more relevant to job seekers rather than current employees.

Question 12

For what purpose would shareholders be most likely to use accounting information provided by their firm?
A) gauging whether the firm is generating a satisfactory return on their investment
B) determining whether the firm can repay them for their stock
C) making capital budgeting decisions
D) obtaining information needed to fill out their individual tax returns

Accepted Answer

Shareholders would be most likely to use accounting information provided by their firm to gauge whether the firm is generating a satisfactory return on their investment. This information helps them to make informed decisions about retaining or divesting their shares.

Question 13

What does accounting provide to users?
A) auditing references to assist Canada Revenue Agency in collecting tax payments
B) timely and relevant information needed to make sound economic decisions
C) information on the financial decisions of its shareholders
D) knowledge of how to position a product for its market

Accepted Answer

Accounting provides timely and relevant information that helps individuals and businesses make informed economic decisions. It does not provide auditing references for tax purposes or information on product positioning. While shareholders may use accounting information, it is not limited to them.

Question 14

Which of the following summarizes a firm's financial position at a specific point in time (e.g., a specific quarter or year)?
A) statement of cash flows
B) investment income statement
C) balance sheet
D) income statement

Accepted Answer

A balance sheet summarizes a firm's financial position at a specific point in time by showing its assets, liabilities, and equity. The statement of cash flows shows cash inflows and outflows over a period of time, the income statement shows the company's revenues and expenses over a period of time, and the investment income statement shows the income earned from investments.

Question 15

Firms that sell goods that spoil easily or quickly become obsolete would want a very low inventory turnover ratio.

Accepted Answer

Firms that sell goods that spoil easily or quickly become obsolete would want a high inventory turnover ratio to avoid having unsold stock that goes bad or out-of-date.

Question 16

What is the term for what the firm owes its creditors?
A) liabilities
B) owners' equity
C) retained earnings
D) assets

Accepted Answer

Liabilities refer to the debts or obligations that a firm owes to its creditors. This may include loans, accounts payable, or other outstanding debts.

Question 17

Which set of statements comprises the major output of financial accounting?
A) general journal, cash budget, and capital budget
B) annual report, social audit, and balanced scorecard
C) balance sheet, income statement, and statement of cash flows
D) dividend record, auditor's opinion, and master budget

Accepted Answer

The balance sheet, income statement, and statement of cash flows are the major financial statements that summarize a company's financial performance and position. These statements provide information about the company's assets, liabilities, equity, income, expenses, and cash flows, which are important for decision-making by investors, creditors, and other stakeholders. The other options listed are not major outputs of financial accounting.

Question 18

What resulted from the corporate scandals in the late 1990s and early part of the 21st century?
A) a surge in the reputation of the accounting profession, because in many organizations it seemed only the accountants refused to go along with the fraudulent schemes
B) a call for improved ethical training and standards in the accounting profession
C) decisions by governments to replace external auditors with government auditors
D) a resurgence of investor confidence

Accepted Answer

The corporate scandals in the late 1990s and early part of the 21st century resulted in a call for improved ethical training and standards in the accounting profession, as these scandals were often linked to accounting fraud and manipulation. This led to the creation of new regulations, such as the Sarbanes-Oxley Act, which required greater transparency and accountability in financial reporting. While some individuals within the accounting profession were praised for their refusal to go along with fraudulent schemes, this did not necessarily result in a surge in the reputation of the profession overall. There was also no widespread decision by governments to replace external auditors with government auditors, and while investor confidence eventually recovered, it took time and was not an immediate result of the scandals.

Question 19

Which statement describes the accounting profession during the first few years of the 21st century?
A) It focused mainly on helping firms improve the quality and accuracy of the financial information provided to stakeholders.
B) It was recognized as the most ethical of all the business professions.
C) It suffered a loss of jobs as computerized systems did away with the need for professional accountants.
D) It was embarrassed by a series of scandals that seemed to suggest a serious decline in accounting standards.

Accepted Answer

The statement that describes the accounting profession during the first few years of the 21st century is "It was embarrassed by a series of scandals that seemed to suggest a serious decline in accounting standards." This refers to events such as the Enron scandal and the collapse of Arthur Andersen, which shook public confidence in the accounting profession and led to increased scrutiny and regulation.

Question 20

What is the term for valuable things owned by the firm?
A) owners' equities
B) retained earnings
C) liabilities
D) assets

Accepted Answer

Valuable things owned by the firm are referred to as assets.

Therefore, the correct answer is D.

Quiz 7: Accounting: Decision Making by the Numbers

A high debt-to-equity ratio indicates that the firm is relying heavily on debt, or is "highly leveraged."

Which type of accounting addresses the needs of external stakeholders, including shareholders, creditors, and government regulators?

What are managers, shareholders, employees, and creditors?

The balance sheet is organized to reflect the accounting equation. What is the accounting equation?

Which companies are required to follow the IFRS?

What process would provide shareholders or creditors with information about the overall financial performance of a firm?

Which of the following is a system for recognizing, recording, organizing, summarizing, analyzing, and reporting information about the financial transactions that affect an organization?

The debt-to-asset ratio measures the extent to which a firm relies on debt financing by dividing total debt by total assets.

What is the body of principles that guides the financial accounting process used to create financial statements?

What has the accounting profession adopted to guide the practice of financial accounting in order to provide external shareholders with relevant, reliable, consistent, and comparable financial information?

For what purpose would employees be most likely to use their employer's accounting information?

For what purpose would shareholders be most likely to use accounting information provided by their firm?

What does accounting provide to users?

Which of the following summarizes a firm's financial position at a specific point in time (e.g., a specific quarter or year) ?

Firms that sell goods that spoil easily or quickly become obsolete would want a very low inventory turnover ratio.

What is the term for what the firm owes its creditors?

Which set of statements comprises the major output of financial accounting?

What resulted from the corporate scandals in the late 1990s and early part of the 21st century?

Which statement describes the accounting profession during the first few years of the 21st century?

What is the term for valuable things owned by the firm?