Which of the Following Statements Represents Good Advice Prior to Making

question 128

Multiple Choice

Which of the following statements represents good advice prior to making capital expenditures?

• A) Capital expenditures represent borrowed funds that must be repaid in one year or less. It is important to seek the advice of your accountant prior to committing.
• B) Capital expenditures represent investment in inventories and expendable assets that the firm will use in one year or less. It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.
• C) Most firms do not value capital expenditures on their balance sheets, so it is important to stay abreast of the market value of these assets at all times, in case you want to sell them.
• D) Capital expenditures are major investments, meaning they require large sums of funds. Companies should weigh all possible options before committing available resources to projects that take significant amounts of funds and extended time.

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Definitions:

Operating Cycle

The time period between purchasing raw materials and collecting cash from selling finished goods, measuring the efficiency of a company's operations and cash flow.

Extraordinary Item

Unusual and infrequent gains or losses on a company's financial statements, not expected to recur in the foreseeable future, a concept that has been phased out in many accounting standards.

Income Statement

A report detailing a business's income and outgoings within a set timeframe, culminating in a final profit or loss.

Period Costs

Expenses recognized in the income statement in the period they are incurred, not directly tied to the production process and therefore not inventoriable.