What Is Primarily Responsible for the Potential Distortion Among the ROA

question 91

Multiple Choice

What is primarily responsible for the potential distortion among the ROA of different firms when net income is used in the numerator of ROA?

• A) Firms have different dividend payout ratios.
• B) Some firms use fully depreciated assets.
• C) Financial leverage varies among firms.
• D) Unprofitable firms will not have any tax liability.

---

Definitions:

End-of-period Spreadsheet

A financial report or document summarizing the accounting data and transactions at the close of an accounting period, often used for preparing financial statements.

Closing Entries

Closing entries are journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts, clearing the temporary accounts for the next period.

Pre-closing Trial Balance

A listing of all active ledger accounts and their balances after adjusting entries are made but before closing entries, to verify the equality of debits and credits.

Closing Entries

Closing entries are journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts and prepare the company's books for the next period.