Which of the Following Statements Is ­Consistent with the Positive

question 12

Multiple Choice

Which of the following statements is ­consistent with the positive accounting theory paradigm?

• A) Managers avoid future sacrifice of economic benefits debt covenants when the company is close to violation of debt covenants.
• B) Managers avoid constructive obligations in the presence of accounting based debt covenants even though there is no realistic alternative to making future sacrifice of economic benefits.
• C) Managers choose accounting methods that will decrease income to reduce the probability of debt covenant violation.
• D) Managers avoid income increasing accounting methods to reduce the probability of debt covenant violation.

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Definitions:

Coefficient Of Variation

A statistical measure used to analyze the relative variability of data points in a dataset or the risk per unit of return; it is the ratio of the standard deviation to the mean.

Well-Diversified Portfolio

An investment portfolio consisting of a wide variety of assets to reduce exposure to risk through diversification.

Beta

A measure of a stock's volatility in relation to the overall market, indicating its risk compared to the market average.

Unsystematic Risk

The risk associated with a specific company or industry, which can be mitigated through diversification, unlike systematic risk.