An Auditor of Financial Statements Believes That There Is Substantial

question 12

Multiple Choice

An auditor of financial statements believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time.In evaluating the entity's plans for dealing with the adverse effects of future conditions and events,the auditor most likely would consider,as a mitigating factor,the entity's plans to:

• A)Repurchase the entity's stock at a price below its book value.
• B)Issue stock options to key executives.
• C)Refinance debt to lower loan payments.
• D)Accelerate the due date of an existing mortgage.

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Definitions:

Du Pont Equation

A formula that breaks down the components of a company's return on equity into three parts: operating efficiency, asset use efficiency, and financial leverage.

ROE

Return on Equity; a measure of financial performance calculated by dividing net income by shareholder's equity, indicating how well a company uses investments to generate earnings growth.

Sales

The total amount of goods or services sold by a company, a primary source of revenue for businesses.

Net Income

The profit of a company after all expenses, taxes, and deductions have been subtracted from total revenue.