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ABC Company owes XYZ Enterprises $1 million for goods purchased from XYZ over a year ago. XYZ Enterprises continues to list the $1 million in their accounts receivable balance and does not record any allowance for doubtful accounts. XYZ Enterprises is failing to followFinancial Accounting Standards Board FAS 157SFAS 169Financial Accounting Standards Board Statement No. 5SFAS 1012The bankruptcy of WorldCom in 2002 was due to the company s actions inrecording fictitious liabilitiesfailing to record revenuesclassifying expenses as assetsexpensing equipment purchases rather than capitalizing these purchases3The price elasticity of demand coefficient measuresbuyer responsiveness to price changesthe slope of the demand curvehow far business executives can stretch their fixed coststhe extent to which a demand curve shifts as incomes change4Which of the following is a fundamental characteristic of the market system?Government-set wages and pricesProperty rightsCentral planning by governmentUnselfish behavior5In 2002 Adelphia Cable filed bankruptcy when it was discovered thatbank debt in excess of $2.3 billion was not shown on the financial statementssales in excess of $72 billion were omitted from the financial statementsexcess fictitious expenses of $1 million were added to the income statementassets on the financial statements were considerably undervalued6When applying for a bank loan or trade credit one way a company can appear to be in a healthier financial position would be tooverstate its expensesundervalue its assetsunderstate its salesunderstate its liabilities7A normative statement is one thatapplies to macroeconomicsis based on value judgmentsapplies only to microeconomicsis based on the law of averages8Section 55 of the Principles of Professional Conduct of the AICPA states thatmembers should perform all professional responsibilities with the highest sense of integritya member should observe the profession s technical and ethical standards strive continually to improve competence and quality of services and discharge professional responsibility to the best of the member s abilitymembers should accept the obligation to act in a way that will serve the public interest honor the public trust and demonstrate commitment to professionalisma member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities9Four professional general standards and responsibilities for Certified Public Accountants are quality control and assurance professional judgment competence and:knowledgediligenceintegrityindependence10When budgets are used to measure performance there is a danger that budgetary slack may occur. This happens whensales budgets are set too low and cost budgets are set too highsales budgets are set too high and cost budgets are set too highsales budgets are set too high and cost budgets are set too lowsales budgets are set too low and cost budgets are set too low11Failure to provide any care in fulfilling a duty owed to another is calledgross negligenceconstructive fraudbreach of contractnegligence12Assuming an economy has fixed quantities of resources that economyis able to satisfy all consumer wantswill produce the same output whether or not resources are used efficientlyis more efficient the larger the amount of goods and services it producesis able to produce the same amount of output regardless of the production technologies it chooses13When revenue is recognized and shipment has not been made and the criteria for recognizing revenue on bill-and-hold transactions set out in SEC Staff Accounting Bulletin No. 101 have not been met this is known aspremature revenue recognitionpostrevenue recognitiontimely revenue recognitionconservative revenue recognition14According to the Agency Theory in a corporation there are two types of information consumers known asagents and principalscustomers and agentsprincipals and vendorsvendors and customers15The EU Privacy Directive presents problems for the United States in thatseveral layers of approval are necessary before any data may be transferred to a non-EU entitydata may not be transferred to a non-EU entity unless guarantees are provided that equal security measures are in placehigh transfer charges are required to be paid by the recipient in the currency of the country transferring the datatransferred data may not be translated into another language16Tom Donaldson and Tom Dunfee are proponents of ethical guidelines related to technology that are based on differentiating hypernorms from nonhypernorms. This theory is known asTransparent Ethical Dilemma TheoryElectronic Communications Privacy TheoryIntegrative Social Contracts TheorySocial Contract Network Theory17If a conflict of interest arises prior to entering into a business contract the parties shouldcommence a cooling-off period until the conflict is removeddetermine the type of conflict and if disclosure of the conflict of interest is sufficient to proceed with the contractstop negotiations immediately and contact a mediator to negotiate the terms of the contractcease and desist because all conflicts of interest are irreconcilable18When evaluating the performance of managers in investment centers performance metrics should be based onrevenue and costs under their controlonly costs under their controlrevenues costs and investments under their controlonly investments under their control19Agency costs arise when agents fail to act in the best interests of the principals. One example of losses from poor decisions would beincreasing the scope of the audit of the financial statementsinvesting additional funds in profitable projectsprioritizing projects according to the best interests of the corporationpurchasing inferior material to earn yearly bonus20If the price of normal good X rises the incomeeffect will induce the consumer to buy more of X and the substitution effect will induce him to buy lessand substitution effects will both induce the consumer to buy less of Xand substitution effects will both induce the consumer to buy more of Xeffect will induce the consumer to buy less of X and the substitution will induce him to buy more21Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is3.941.374.002.0922Many conflicts of interest in business contracts can be remedied ethically by which of the following?Camouflage and consentDeception and disclosureConflicts of interest can never be remedied ethicallyDisclosure and consent23The pursuit of self-interestmeans the same as selfishnessis highly detrimental to the market systemgives direction to the market systemis reflected in the behavior of firms but not in the behavior of consumers24The concept of economic efficiency is primarily concerned withthe limited wants-unlimited resources dilemmaobtaining the maximum output from available resourcesthe conservation of irreplaceable natural resourcesconsiderations of equity in the distribution of wealth25Other things equal an excise tax on a product willincrease its supplyincrease the quantity soldincrease its priceincrease its demand26When the economist says that economic wants are insatiable this means thatthese wants are virtually unlimited and therefore incapable of complete satisfactioneconomic resources are valuable only because they can be used to produce consumer goodsthe structure of consumer demand varies from time to time and from country to countryeconomic resources land labor capital and entrepreneurial ability are scarce27The income effect indicates thatwhen the price of a product falls the lower price will induce the consumer to buy more of that product now that it is relatively cheaperwhen the price of a product falls a consumer will be able to buy more of it with a specific incomeconsumers should substitute among various products until the marginal utility from the last unit of each product purchased is the samea rise in money income will cause consumers to buy smaller quantities of normal goods28In 2003 FASB and IASB met and established four criteria for establishing revenue recognition. To recognize revenue which of the following conditions must be present?Payment for the sale must be received prior to recognizing the revenue.A promise to deliver has been established.A change in assets has occurred and can be appropriately measured.The product or deliverable in the case of a service business has been received by the customer.29Productive efficiency refers tothe production of the product-mix most wanted by societythe full employment of all available resourcesproduction at some point inside of the production possibilities curvethe use of the least-cost method of production30Which of the following is a normative statement?It will cool off later this evening.The humidity is high today.It is too hot to play tennis today.The temperature is high today.

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