Which of the Following Is an Example of an Implicit

question 327

Multiple Choice

Which of the following is an example of an implicit cost?
(i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm
(ii) interest paid on the firm's debt
(iii) rent paid by the firm to lease office space

• A)(ii) and (iii) only
• B)(i) and (iii) only
• C)(i) only
• D)(iii) only

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Definitions:

Capital Lease

A lease classified as a purchase by the lessee for accounting purposes, where the lessee obtains significant ownership rights over the asset.

Operating Lease

is a rental agreement allowing a lessee to use an asset temporarily without ownership, typically with terms significantly shorter than the asset's life.

Operating Cash Flows

The cash generated from the normal operating activities of a business, reflecting its ability to generate positive cash flow to maintain and grow its operations.

GAAP

Generally Accepted Accounting Principles, a collection of commonly-followed accounting rules and standards for financial reporting in the United States.