The XYZ Corporation Determines It Can Make a Real (Inflation-Adjusted)

question 28

Multiple Choice

The XYZ Corporation determines it can make a real (inflation-adjusted) return on an investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7 percent. We can conclude that the

• A) investment will be profitable.
• B) investment will be unprofitable.
• C) real rate of interest is 4 percent.
• D) real rate of interest is 2 percent.

---

Definitions:

Accounting Assumptions

Accounting Assumptions are foundational principles followed in the preparation of financial statements, such as the consistency, going concern, and accrual basis.

Conventions

Established practices or standards in accounting that guide the preparation and presentation of financial statements.

Materiality Principle

An accounting principle that states financial reports should include all items significant enough to influence the decision-making process of an individual reading the report.

Charging to Expense

The process of recognizing a cost as an expense in the income statement during the period in which it is incurred.