If a Firm Is Not Covering the Cost of All

question 540

Multiple Choice

If a firm is not covering the cost of all resources employed by the firm (including the opportunity cost of resources owned by the firm) , it will generally

• A) go out of business in the long run.
• B) remain in business as long as the current conditions are unchanged.
• C) experience an increase in its stock price because investors will be attracted to it.
• D) attempt to expand the size of its operation.

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Definitions:

Journal Entries

Records in accounting that document financial transactions in the books of account, showing the debit and credit of each transaction.

Dividends

Payments made by a corporation to its shareholders from its profits or reserves.

Balance Sheet Errors

Mistakes that occur in the preparation of the balance sheet, including misclassifications, incorrect amounts, or omitted transactions.

Retained Earnings

The portion of a company's profits that is kept or retained rather than distributed to shareholders as dividends, typically used for reinvestment.