An accounting change requiring retrospective treatment is a change in:

• A.The residual value of equipment.
• B.Depreciation methods from straight-line to diminishing-balance.
• C.An accounting policy inseparable from a change in an accounting estimate.
• D.A provision for warranty costs.

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A condensed comparative balance sheet for an entity appears below:

In looking at liquidity ratios at both balance sheet dates, what happened to the 1) current ratio and 2) acid-test (quick) ratio?

• A.Option A
• B.Option B
• C.Option C
• D.Option D

Correct Answer: D

The current ratio is determined by dividing current assets by current liabilities. The acidtest
ratio is determined by dividing quick assets by current liabilities. At December 31. Year 1. The current ratio is 6 to 1 [(US $40,000 + $120,000 + $200,000) - $60,01101. December
31. Year 2, the current ratio is 4.3 to 1 [(US $30,000 + $100,000 + $300,000) -$100,000]. Hence, there was a decrease in the current ratio. At December 31, Year 1, the acid-test ratio is 2.667 to 1 [(US $40,000 + $120,000) - $60.000]. At December 31, Year 2, the acid-test ratio is 1.3 to 1 [(US $3:0,000 + $100,000) - $100,000]. Thus, the acidtest ratio also declined. An entity's financial statements for the current year are presented below:

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An organization discovered fraudulent activity involving the employee time-tracking system. One employee regularly docked in and clocked out her co-worker friends on their days off, inflating their reported work hours and increasing their wages. Which of the following physical authentication devices would be most effective at disabling this fraudulent scheme?

• A.Face or finger recognition equipment,
• B.Radio-frequency identification chips to authenticate employees with cards.
• C.A requirement to clock in and clock out with a unique personal identification number.
• D.A combination of a smart card and a password to clock in and clock out.

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Which of the following measures the operating success of a company for a given period of time?

• A.Liquidity ratios.
• B.Profitability ratios.
• C.Solvency ratios.
• D.Current ratios.

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Which of the following is an example of a contingent liability?

• A.A retail store in a shopping mall pays the lesser a minimum monthly rent plus an agreed-upon percentage of sales
• B.A company is refusing to pay the invoice for the annual audit because it seems higher than the amount agreed upon with the public accounting entity's partner
• C.A company accrues income tax payable in its interim financial statements
• D.A lessee agrees to reimburse a lesser for a shortfall in the residual value of an asset under lease

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