Which of the Following Statements Represents Good Advice Prior to Making

question 92

Multiple Choice

Which of the following statements represents good advice prior to making capital expenditures?

• A)Capital expenditures represent borrowed funds that must be repaid in one year or less.It is important to seek the advice of your accountant prior to committing.
• B)Capital expenditures represent investment in inventories and expendable type assets that the firm will use in one year or less.It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.
• C)Most firms do not value capital expenditures on their balance sheets,so it is important to stay abreast of the market value of these assets at all times,in case you want to sell them.
• D)Capital expenditures are major investments - meaning they require large sums of funds.Companies should weight all possible options before committing available resources to projects that take significant amounts of funds and extended time.

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Definitions:

Fixed Costs

Expenses that do not change in proportion to the activity of a business, such as rent, salaries, and equipment costs.

Net Income

The net income of a business following the deduction of all costs and taxes from its earnings.

Specific Identification Method

An inventory valuation method where costs are directly assigned to individual units of inventory, enabling precise profit margin calculations.

Inventory Valuation

The method used to determine the cost associated with an inventory at the end of a financial period, which affects cost of goods sold and, consequently, net income.