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Skilled professionals who are primarily responsible for the development of strategies to minimize taxes are called


A) tax accountants.
B) certified public accountants.
C) certified management accountants.
D) certified internal auditors.

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

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Which of the following responses is the best and most comprehensive? "A company's accounting information is useful to ________."


A) managers within the firm, exclusively
B) marketing research firms for pricing insights
C) primarily the IRS and other government agencies that regulate the firm
D) managers, owners, creditors, employees, and the government

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

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We would expect the inventory turnover ratio for a ski shop to be ________ than the turnover for a convenience store.


A) higher
B) more meaningful
C) lower
D) less helpful

E) All of the above
F) C) and D)

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The ________ ratio helps determine the ability of a firm to repay its short-term debts even if it has difficulty selling its inventory.


A) acid-test
B) cash flow
C) diluted current asset
D) required reserve

E) A) and C)
F) All of the above

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The bottom line of an income statement shows the firm's


A) retained earnings.
B) gross profit.
C) net income or net loss.
D) owners' equity.

E) C) and D)
F) All of the above

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A(n) ________ is a yearly published statement of the financial condition, progress, and expectations of an organization.


A) balance sheet
B) independent audit
C) mission statement
D) annual report

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

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Purchasing insurance, paying employees, and using supplies are examples of financial transactions.

A) True
B) False

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Identify and explain the differences between LIFO and FIFO inventory valuation methods. What would be the difference in gross margin using FIFO versus LIFO?

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FIFO stands for first-in, first-out. Thi...

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Lyell owns his own small business, but he doesn't want to be bothered with accounting information. He tells his friends, "All I need accounting for is to prepare my income tax return for my business. I'll hire someone to do that for me." Lyell's attitude would be disastrous if he managed a large firm, but it is a reasonable view for a small business owner.

A) True
B) False

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Profitability ratios are often used to measure management's earnings performance.

A) True
B) False

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Peak Performance Sporting Goods Company has just applied for a bank loan in order to expand the business. Using the most recent balance sheet data provided by the company owner, you calculate that the company's current ratio is 2.5. In your presentation to the company boss, you remark


A) Peak Performance is currently having trouble meeting its short-term obligations.
B) Peak Performance has $2.50 that it owes each month, for every $1.00 of cash that it is generating.
C) Peak Performance has $2.50 of current assets for each $1.00 of current liabilities.
D) Due to the fact that most of Peak Performance's current assets are tied up in inventory, there is no need to worry about whether Peak Performance will be able to make loan payments.

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

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Double-entry bookkeeping can help identify a recording error made by a bookkeeper.

A) True
B) False

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Money received from tickets sold for the Taylor Swift concert is recorded as net income on the concert promoter's income statement.

A) True
B) False

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Although managers who work for large firms must know something about accounting, people who run small businesses only need to know the basics of bookkeeping.

A) True
B) False

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The reports and financial statements prepared by accountants


A) are more useful for profit-seeking businesses than they are for not-for-profit organizations.
B) are mainly used to help the firm complete its tax forms.
C) provide information that can be used by decision makers both inside and outside the organization.
D) are not as useful now that firms have moved into a more global environment.

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

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The acid-test ratio is found by dividing inventory by cost of goods sold.

A) True
B) False

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The Sarbanes-Oxley Act strengthens the protection for whistleblowers who report wrongful actions of company officers.

A) True
B) False

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The ________ is a six-step procedure that results in the preparation and analysis of the major financial statements.


A) double-entry method
B) financial management process
C) financial performance appraisal
D) accounting cycle

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

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A comparison of bookkeeping and accounting indicates that


A) the two are virtually the same in practice.
B) bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information.
C) bookkeeping is more useful for small businesses while accounting is more useful for large businesses.
D) accounting is a subsystem of the process of bookkeeping.

E) All of the above
F) B) and C)

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Financial ratios that reflect the degree to which a firm relies on borrowed funds are called ________ ratios.


A) leverage
B) liquidity
C) activity
D) profitability

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

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