Which one of the following is true according to Generally Accepted Accounting Principles?
  • Costs of goods sold are recorded based on the matching principle.

You recently purchased a grocery store. At the time of the purchase, the store’s market value equaled its book value. The purchase included the building, the fixtures, and the inventory. Which one of the following is most apt to cause the market value of this store to be lower than the book value?

  • construction of a new restricted access highway located between the store and the surrounding residential areas
The higher the degree of financial leverage employed by a firm, the:
  • higher the probability that the firm will encounter financial distress.
Which one of the following statements concerning net working capital is correct?
  • Net working capital increases when inventory is sold for cash at a profit.
Which one of the following statements concerning net working capital is correct?
  • A decrease in the cash balance also decreases net working capital.

Which one of the following is included in a firm’s market value but yet is excluded from the firm’s accounting value?

  • good reputation of the company
Which term relates to the cash flow which results from a firm’s ongoing, normal business activities?
  • operating cash flow
The cash flow of a firm which is available for distribution to the firm’s creditors and stockholders is called the:
  • cash flow from assets.