Because a Company Such as Boeing Produces Expensive Durable Goods

question 13

Multiple Choice

Because a company such as Boeing produces expensive durable goods (aircraft) , the demand for their goods:

• A)is likely to increase during recession.
• B)declines when incomes in the economy are rising.
• C)is consistently high, regardless of the state of the economy.
• D)tends to follow the business cycle.

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Definitions:

Liability

A financial obligation or debt that an individual or company owes to another entity, which must be settled over time.

Long-term Debt

Borrowings or financial obligations that are due to be repaid over a period longer than one year.

Pro Forma Financial Statements

Financial statements based on hypothetical scenarios or assumptions about the future of a business.

Spontaneously Generated Funds

Funds generated if a liability account increases spontaneously (automatically) as sales increase. An increase in a liability account is a source of funds; thus, funds have been generated. Two examples of spontaneous liability accounts are accounts payable and accrued wages. Note that notes payable, although a current liability account, is not a spontaneous source of funds since an increase in notes payable requires a specific action between the firm and a creditor.