Potential Earning Power, Which Determines the True Value of the Firm

question 42

Multiple Choice

Potential earning power, which determines the True value of the firm, is best calculated using

• A) the price/earnings ratio method.
• B) the adjusted tangible book value method.
• C) the discounted earnings method.
• D) The adjusted tangible book value method.

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Definitions:

Sales Tax

A government-imposed tax on the sale of goods and services, collected by the retailer and passed on to the government.

General Journal

A primary accounting record used to record all types of transactions before they are posted to the specific accounts in the ledger.

General Ledger

The main accounting record of a business that uses double-entry bookkeeping, which contains all the financial accounts and transactions of the company.

Subsidiary Ledgers

Detailed records that contain information about specific accounts, such as accounts receivable or payable, that support the summarized data in the general ledger.