Which is a true statement regarding the accounting equation?

A) The equation can be stated as assets minus liabilities equals equity.
B) The equation consists of three parts: assets, liabilities, and net income.
C) The equation is an optional tool for accountants to use.
D) The equation does not need to balance during a specific period.

A

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Hungry Howie's maintains a constant payout ratio. The firm is currently operating at full capacity. What is the maximum rate at which the firm can grow without acquiring any additional external financing?

A. 9.74 percent B. 10.52 percent C. 11.06 percent D. 11.58 percent E. 12.23 percent

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The concepts of audit risk and materiality are interrelated and must be considered together by the auditor. Which of the following is true?

A. Audit risk is the risk that the auditor may unknowingly express a modified opinion when, in fact, the financial statements are fairly stated. B. The phrase in the auditor's report "present fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America" indicates the auditor's belief that the financial statements as a whole are not materially misstated. C. If misstatements are not important individually but are important in the aggregate, the concept of materiality does not apply. D. Material fraud but not material errors cause financial statements to be materially misstated.

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