Two Companies Made Similar Acquisitions of Fixed Assets During the Past

question 1

Multiple Choice

Two companies made similar acquisitions of fixed assets during the past year, yet one company consistently reports a lower amortization expense.This is an example of which of the following limitations of financial ratios?

• A)Financial statements are historical.
• B)Managers prepare financial statements.
• C)Accounting policies and estimates affect ratios.
• D)Financial statements are not the only source of information.

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Definitions:

Economic Loss

A situation where total costs exceed total revenues, indicating that a firm is not covering its opportunity costs.

Accounting Profit

The calculated income of a business or company after subtracting all explicit costs from total revenues.

Average Variable Cost

Calculated by dividing the total variable costs by the quantity of output produced, representing the variable cost per unit of output.

MR = MC

The condition where marginal revenue equals marginal cost, often used to determine the profit-maximizing output level for a firm.