If a Firm Goes Out of Business Because of Negative

question 111

Multiple Choice

If a firm goes out of business because of negative economic profits,its books

• A) might indicate a positive accounting profit.
• B) might indicate that opportunity costs were zero.
• C) might indicate that taxes are too high.
• D) might suggest a mistaken value of explicit costs.

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Definitions:

Completed-Contract Method

An accounting method used where revenue and profit are deferred until a contract is completed, particularly useful in long-term projects.

Percentage-Of-Completion Method

An accounting method used to recognize revenue and expenses of long-term contracts proportionally to the amount of work completed.

Extractive Industry

Industries involved in the extraction of natural resources from the earth, such as mining, drilling for oil, or logging.

Allowance Method

A method of accounting for bad debts that involves estimating and recording the amount of uncollectible accounts receivable.