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The resources owned by David's Spa and Salon total $148,000.The total amount of debt that it owes to others is $87,000.Which of the following is correct?


A) David's owners' equity is $87,000.
B) The owners' equity in David's is $61,000.
C) David's liabilities are $148,000.
D) The firm's liabilities are $61,000.
E) The firm has more owners' equity than liabilities.

F) A) and E)
G) A) and B)

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While a firm's managers are the primary users of accounting information, lenders, suppliers, stockholders, and government agencies are also interested in a firm's accounting information.

A) True
B) False

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Which of the following statements is false?


A) When the SEC began to look for accounting irregularities, Andersen employees shredded documents.
B) The accounting firm of Arthur Andersen was convicted of obstruction of justice.
C) Less than a month after admitting accounting errors, Enron filed for bankruptcy.
D) Enron inflated earnings by almost $600 million.
E) To date, Arthur Andersen is the only major accounting firm that has been targeted by trial lawyers, government regulators, and the IRS for providing questionable audit work for major corporations.

F) A) and D)
G) C) and E)

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Clockwise, Inc., wants to design an entire system for providing accurate financial information.Who will provide this service?


A) its accountant
B) the state controller
C) the Internal Revenue Service
D) the state attorney general
E) its bookkeeper

F) B) and E)
G) A) and B)

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Christine's First Job Christine has just earned her undergraduate degree in accounting and has successfully completed the CPA exam.She recently interviewed with a relatively small and new company and was offered a job.The offer sounded very promising; the job had opportunities to grow with the company and provided diverse challenges.Christine accepted the job. Once Christine started working, she realized that the owners and employees did not have a general understanding of accounting.She had to teach them the steps in an accounting cycle so they would be able to understand how she was going to create reports.When she talked about the statement of financial position, they had no idea what she was talking about.She was the qualified individual responsible for accounting.No one else working with her had much knowledge.They did not even know the different financial ratios that someone could use to understand the financial standing of a company.Christine knows it will be a challenge to keep everyone on the same page when it comes to numbers and reports. -Refer to Christine's First Job.To help the owners understand how effectively the firm is transforming sales into profits, Christine should address which of the following ratios?


A) return on sales
B) earnings per share
C) acid-test ratio
D) return of owners' equity
E) inventory turnover

F) A) and B)
G) A) and C)

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Which section of the statement of cash flows would show Wendy's payments for food ingredients and wages paid to employees?


A) cash flows from operating activities
B) cash flows from financing activities
C) business cash flows
D) non-business-related cash flows
E) cash flows from investing activities

F) A) and B)
G) A) and C)

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There is added protection for whistle-blowers who report violations of the Sarbanes-Oxley Act.

A) True
B) False

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The mortgage on Prudential Insurance's local facility will be paid off over the next 30 years.The majority of this mortgage would be classified on Prudential's balance sheet as a(n) _____.


A) current asset
B) current liability
C) long-term asset
D) long-term liability
E) account payable

F) B) and D)
G) A) and B)

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Christine's First Job Christine has just earned her undergraduate degree in accounting and has successfully completed the CPA exam.She recently interviewed with a relatively small and new company and was offered a job.The offer sounded very promising; the job had opportunities to grow with the company and provided diverse challenges.Christine accepted the job. Once Christine started working, she realized that the owners and employees did not have a general understanding of accounting.She had to teach them the steps in an accounting cycle so they would be able to understand how she was going to create reports.When she talked about the statement of financial position, they had no idea what she was talking about.She was the qualified individual responsible for accounting.No one else working with her had much knowledge.They did not even know the different financial ratios that someone could use to understand the financial standing of a company.Christine knows it will be a challenge to keep everyone on the same page when it comes to numbers and reports. -Refer to Christine's First Job.When Christine explained the steps in the accounting cycle, she identified which of the following as the first step in the accounting cycle?


A) analyzing the source documents
B) preparing financial statements
C) posting
D) preparing the trial balance
E) recording

F) C) and E)
G) A) and C)

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The ratio that is sometimes referred to as the quick ratio is the _____.


A) inventory turnover
B) acid-test ratio
C) current ratio
D) debt-to-assets ratio
E) debt-to-equity ratio

F) A) and B)
G) A) and C)

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Rich wants to measure the profitability of his business.Which of the following pairs of ratios would you recommend for this?


A) return on owners' equity and debt-to-equity
B) current ratio and acid-test ratio
C) return on sales and sales turnover
D) inventory turnover and earnings per share
E) earnings per share and return on sales

F) B) and E)
G) A) and C)

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Audited financial statements guarantee that a firm has not "cooked" the books.

A) True
B) False

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The balance sheet is composed of


A) owners' equity, assets, and liabilities.
B) expenses, revenue, and net income.
C) revenue, expenses, and owners' equity.
D) assets, expenses, and net income.
E) assets, liabilities, and revenues.

F) C) and D)
G) A) and D)

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Sarah has just completed journalizing the day's entries in the general journal for her housecleaning business.The next step she must take in the accounting cycle will be


A) posting the journal entries to the ledger.
B) analyzing the day's transactions.
C) making adjustments in the journal.
D) preparing a trial balance.
E) closing the books and preparing financial statements.

F) A) and B)
G) All of the above

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The value of goods on hand for sale to customers is called _____.


A) sales
B) merchandise inventory
C) cost of goods sold
D) prepaid expenses
E) operating expenses

F) C) and E)
G) A) and B)

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Intel decides to issue new stock in order to build a new facility and expand its operations.The receipt of cash from this stock issue would appear in the ____ section of the statement of cash flows.


A) operating
B) business
C) equity
D) investing
E) financing

F) A) and B)
G) A) and C)

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Ridgley, Cooper, and Ross (RCR) Katie is the CEO of Ridgley, Cooper, and Ross (RCR) , a regional accounting firm.RCR offers services in most areas of accounting, including auditing and consulting services.The firm must follow the GAAP rules, just like any other accounting firm.If there are information gaps that are not addressed and resolved by the firm, RCR could be considered a violator of the Sarbanes-Oxley Act.Katie understands what must be done and wants every employee of the firm to understand that they have to follow all the rules and regulations.Like any other industry, accounting is a competitive industry and employees of accounting firms must be productive, progressive, and well trained. -Refer to Ridgley, Cooper, and Ross.What does GAAP stand for?


A) generally accepted accounting principles
B) generally accepted auditing principles
C) generalized accounting and auditing principles
D) generic accounting alternative practices
E) general administrative accounting practices

F) A) and E)
G) C) and D)

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Energizer offers its customers a reduction in price if they pay for their shipments of batteries within ten days of receiving them.This is a(n) _____.


A) sales allowance
B) trade discount
C) sales return
D) sales discount
E) inventory reduction

F) A) and B)
G) A) and E)

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Define a balance sheet (also called a statement of financial position).

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Answered by ExamLex AI

Answered by ExamLex AI

A balance sheet, also known as a stateme...

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It is not necessary to audit a firm's financial statements if the firm has used generally accepted accounting principles.

A) True
B) False

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