Total Equity May Be More Reliable of a Benchmark for Determining

question 118

Multiple Choice

Total equity may be more reliable of a benchmark for determining planning materiality when a company is experiencing a _______.

• A)loss or very poor operating results
• B)high number of operating lease contracts
• C)large amount of property, plant, and equipment purchases
• D)significant volume of sales.

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Definitions:

Fixed Assets Investment

Expenditure on physical assets such as machinery, land, and buildings, intended for long-term use in the production of goods and services.

Financial Leverage

The use of borrowed money (debt) in an effort to increase the potential return of an investment.

Liquidity and Working Capital

The ability of a company to meet its short-term obligations using its most liquid assets, and the difference between current assets and current liabilities, respectively.

Capital Intensity Ratio

A financial metric that measures the amount of capital required to generate one dollar of revenue, indicating how capital-intensive a business is.