Hector Had Been Asked to Serve on the Board of a Major

question 58

Multiple Choice

Hector had been asked to serve on the board of a major pharmaceutical firm.He reluctantly declined,citing the firm's lack of liability coverage for outside members of the board of directors.Hector's decision indicates that he:

• A)will self-insure against a loss from legal action taken against the pharmaceutical firm.
• B)feels that the potential loss from legal action against this firm is an uninsurable risk.
• C)insists that the firm follow the rule of indemnity.
• D)will manage his risk by avoiding the potential loss from a liability suit directed at the board of directors.

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Definitions:

Gross Profit

The financial metric that represents the difference between sales revenue and the cost of goods sold.

LIFO Inventory Method

An accounting technique where the most recently acquired items of inventory are recorded as sold first, often used to calculate cost of goods sold and ending inventory.

Merchandise Inventory

The goods and products a company holds for the purpose of selling to customers.

FIFO Inventory Method

An approach to valuing inventory that assumes the first items purchased are the first ones sold, leading to older inventory costs being assigned to cost of goods sold.