For the Past 15 Years the American Public Has Wanted

question 56

Multiple Choice

For the past 15 years the American public has wanted to buy big trucks. The Big Three automakers delivered, investing billions in plants that build gas guzzlers. Now, when customers walk into showrooms, gas mileage is on their mind. Retooling the industry will take years. Mike Quincy says the industry is "like a huge aircraft carrier. It doesn't stop on a dime. It doesn't turn on a dime." What does Mike mean?

• A) The decision time frame to enter into the long run is very long in this industry.
• B) The industry has increasing returns to scale.
• C) Short run decisions are easily reversed.
• D) The industry experiences diminishing marginal returns.

Understand the process and implications of closing net income or loss to retained earnings or contributed surplus.

Recognize the definition and implications of a deficit in the Retained Earnings account.

Distinguish between the requirements and options under IFRS and ASPE regarding financial statements.

Calculate and understand the significance of return on common shareholders' equity.

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Definitions:

Extractive Industry

Industries involved in the extraction of natural resources from the earth, such as mining, drilling for oil, or logging.

Allowance Method

A method of accounting for bad debts that involves estimating and recording the amount of uncollectible accounts receivable.

Direct Write-Off Method

An accounting method where uncollectible accounts receivable are directly written off against income at the time they are deemed non-recoverable.

Straight-Line Depreciation

A method of calculating depreciation by evenly spreading the cost of an asset over its useful life.