According to Benford's Law, a Variety of Different Data Sets

question 39

Multiple Choice

According to Benford's Law, a variety of different data sets include numbers with leading (first) 1) ____________ digits that follow the distribution shown in the table below. Test for goodness-of-fit with
Benford's Law. $$\begin{array} { | l | c | c | c | c | c | c | c | c | c | } \hline \text { Leading Digit } & 1 & 2 & 3 & 4 & 5 & 6 & 7 & 8 & 9 \\\hline \begin{array} { l } \text { Benford's law: } \\\text { distribution of } \\\text { leading digits }\end{array} & 30.1 \% & 17.6 \% & 12.5 \% & 9.7 \% & 7.9 \% & 6.7 \% & 5.8 \% & 5.1 \% & 4.6 \% \\\hline\end{array}$$ When working for the Brooklyn District Attorney, investigator Robert Burton analyzed the
Leading digits of the amounts from 784 checks issued by seven suspect companies. The
Frequencies were found to be 0, 12, 0, 73, 482, 186, 8, 23, and 0, and those digits correspond to the
Leading digits of 1, 2, 3, 4, 5, 6, 7, 8, and 9, respectively. If the observed frequenciesare
Substantially different from the frequencies expected with Benford's Law, the check
Amounts appear to result from fraud. Use a 0.05 significance level to test for
Goodness-of-fit with Benford's Law. What is the value of the test statistic? Does it appear that the
Checks are the result of fraud?

• A)χ2 = 3711.409 It does appear that the checks are the result of fraud.
• B)χ2 = 3711.409 It does not appear that the checks are the result of fraud.
• C)χ2 = 15.507 It does appear that the checks are the result of fraud.
• D)χ2 = 15.507 It does not appear that the checks are the result of fraud.

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Definitions:

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life, reflecting the loss of value over time.

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific point in time, detailing assets, liabilities, and shareholders' equity.

Related Asset

An asset that is related to or necessary for the operation or function of another asset.

Wages Expense

Wages expense refers to the total cost incurred by a business for paying salaries or wages to its employees over a specific period.