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As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information from its Balance Sheet: As a bank loan officer, you are considering a loan application by Peak Performance Sporting Goods. The company has provided you with the following information from its Balance Sheet:   Peak Performance's current ratio is: A)  1.0. B)  1.5. C)  2.5. D) 3.0. Peak Performance's current ratio is:


A) 1.0.
B) 1.5.
C) 2.5.
D) 3.0.

E) C) and D)
F) None of the above

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Explain the meaning of the fundamental accounting equation and its relation to the Balance Sheet. If it is helpful, create an example using numbers.

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The fundamental accounting equation is a...

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An independent audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements.

A) True
B) False

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During a period of rising prices, using FIFO (first in, first out) inventory valuation method will result in net income figures than would LIFO (last in, first out) .


A) higher
B) lower
C) the same
D) less accurate

E) A) and B)
F) None of the above

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One of the problems with current accounting procedures is that there is no way for firms to systematically write off the costs of property and equipment over time.

A) True
B) False

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One advantage of the double-entry method of bookkeeping is that it helps to identify mistakes made in recording financial transactions.

A) True
B) False

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Peak Performance Sporting Goods Company has collected the following information about itself and its competitors: Peak Performance Sporting Goods Company has collected the following information about itself and its competitors:   Which of the following statements explains the importance of this information? A) Return on Sales is an indication of how well Peak Performance is competing with others in the industry in generating income from sales. B) Although this information is important to Peak Performance, it is an internal calculation. Investors will not compare Peak Performance's return on sales with others. There are too many other variables such as higher expenses, which may prevent Peak Performance from maintaining the lowest measure. C) Unlike other measurements, a firm hopes that its Return on Sales is the lowest in the industry, thus, Peak Performance is neither doing the best nor doing the worst in its industry. D) As a profitability measurement, return on sales is not as important to the CFO as earnings per share, because this calculation does not show a dilution of ownership. Which of the following statements explains the importance of this information?


A) Return on Sales is an indication of how well Peak Performance is competing with others in the industry in generating income from sales.
B) Although this information is important to Peak Performance, it is an internal calculation. Investors will not compare Peak Performance's return on sales with others. There are too many other variables such as higher expenses, which may prevent Peak Performance from maintaining the lowest measure.
C) Unlike other measurements, a firm hopes that its Return on Sales is the lowest in the industry, thus, Peak Performance is neither doing the best nor doing the worst in its industry.
D) As a profitability measurement, return on sales is not as important to the CFO as earnings per share, because this calculation does not show a dilution of ownership.

E) C) and D)
F) A) and B)

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Accounting software has proven to be especially helpful for small business owners.

A) True
B) False

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Budget preparation is one aspect of managerial accounting.

A) True
B) False

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At present, accounting software packages have proven to be too complex and expensive to be useful for owners of small businesses.

A) True
B) False

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10th Generation Electronics had two transformers in its inventory, one purchased in February for $11,800 and the other acquired in September for $13,300. In December, they sold one of the transformers to Ram Enterprises for $16,400 and reported a gross profit of $3,100. 10th Generation Electronics evidently uses the inventory valuation method.


A) FIFO
B) LIFO
C) Average
D) Flexplus

E) A) and C)
F) None of the above

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Bark Three Times Pet Store established a line of credit with its local banker and used (borrowed) $85,000 against it to purchase its first year's inventory. Since it is required to repay the money before the end of its fiscal year, the company's accountant lists this liability with the current liabilities on the balance sheet.

A) True
B) False

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It is impossible to run a company effectively without the ability to read and understand basic accounting reports and financial statements.

A) True
B) False

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Resources that a firm owns are called:


A) Revenues.
B) Assets.
C) Equities.
D) Credits.

E) A) and D)
F) B) and C)

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A firm's balance sheet reports its financial condition on a specific date.

A) True
B) False

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Olivia is a public accountant. She prepares monthly financial statements for her client, Chick's Auto Body Shop. Presently, though, she must summarize the data in the accounting ledgers to determine if the figures are correct and balanced. Olivia will prepare a statement of cash flows in order to complete this step of the cycle.

A) True
B) False

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The Barkley Company has several automobiles 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.

A) True
B) False

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Which of the following agencies would have the greatest impact on the methods used to record, classify, summarize, and interpret accounting information for the State of Kentucky's Department of Transportation?


A) Commission on Accounting Practices for State Governments
B) Government Accounting Standards Board
C) Independent Not-For-Profit Accounting Standards Board
D) Institute for Public Sector Accounting Standards

E) C) and D)
F) B) and C)

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The preparation of financial statements for people outside the firm (creditors, unions, suppliers, and others) is the goal of:


A) Auditing.
B) Financial accounting.
C) Managerial accounting.
D) Cost accounting.

E) B) and D)
F) A) and B)

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Martha is a member of a conservative political group that wants to identify and publicize examples of wasteful government spending. The type of accounting information Martha and her group will follow most closely is provided by certified public accountants.

A) True
B) False

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