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Which one of the following would constitute a highly inflationary economy when determining the functional currency of a foreign entity?

(A)20% inflation for each of the past 5 years.

(B)30% inflation for each of the past 3 years.

(C)35% inflation for each of the past 3 years.

(D)20%, 35%, and 40% inflation, respectively, for each of the past 3 years.

The Correct Answer

King, CPA, was engaged to audit the financial statements of Newton Company after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors, but was satisfied concerning both after applying alternative procedures.King’s auditor’s report most likely contained a(n)

(A)Qualified opinion (B)Disclaimer of opinion. (C)Unmodified opinion. (D)Unmodified opinion with an other-matter paragraph.

Correct Answer: C

Common stock has a _____ balance and is a/an _____ to the Corporation.

(A)debit; liability (B)credit; liability (C)debit; asset (D)credit; asset (E)credit; equity

Correct Answer: B

Larry, who uses the accrual basis of accounting, hired an extra driver to help him make deliveries in December. The extra driver only works from December 1st through the 31st . Larry pays the driver on January 5th, but the expense is shown on the December income statement. Why? Mark one answer:

(A)Cost benefit analysis (B)Matching principle (C)Cost principle (D)Going concern principle (E)Gross profit margin analysis

Correct Answer: B

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