In Its First Year of Operations, Grace Company Reports the Following

question 78

Multiple Choice

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers) ; Incurred expenses of $35,000 ($31,000 cash paid toward them) ; Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

• A)$13,000.
• B)$21,000.
• C)$25,000.
• D)$17,000.
• E)None of these options are correct

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Definitions:

ROE

Return on Equity - a financial ratio that measures a company's profitability by revealing how much profit a company generates with the money shareholders have invested.

Debt Ratio

A financial ratio that measures the extent of a company's leverage, calculated by dividing total liabilities by total assets.

Profit Margin

Profit margin is a financial metric that measures the percentage of profit a company retains after subtracting its costs from its revenue, reflecting the overall profitability of the business.

Equity Multiplier

A financial ratio indicating how much of a company's assets are financed by stockholder's equity, illustrating the degree of financial leverage used.