A Company Failed to Make an Accrual Adjustment for Interest

question 4

Multiple Choice

A company failed to make an accrual adjustment for interest owed on a short-term bank loan.Which of the following statements is true about how this will affect the financial ratios?

• A)Net profit margin ratio will be understated and debt-to-assets ratio will be overstated.
• B)Net profit margin ratio and debt-to-assets ratios will be unaffected.
• C)Net profit margin ratio will be overstated and debt-to-assets ratio will be understated.
• D)Net profit margin ratio will be unaffected and debt-to-assets ratio will be overstated.

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Definitions:

Scale of Production

Refers to the size of the operation or the volume of output produced by a business or manufacturing plant.

Average Total Cost

Average Total Cost is the total cost of production divided by the total quantity produced, representing the per unit cost of production.

Returns to Scale

The change in output as a result of proportionately changing all inputs in the production process.

Student Enrollment

The process through which students register or enter into a course of study at educational institutions.