Which of the Following Statements Is CORRECT

question 105

Multiple Choice

Which of the following statements is CORRECT?

• A) Assume that two firms are both following generally accepted accounting principles.Both firms commenced operations two years ago with $1 million of identical fixed assets,and neither firm either sold any of those assets or purchased any new fixed assets.The two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors.
• B) Assets other than cash are expected to produce cash over time,and the amount of cash they eventually produce must be the same as the amounts at which the assets are carried on the books.
• C) The income statement shows the difference between a firm's income and its costs-i.e. ,its profits-during a specified period of time.However,all reported income comes in the form of cash,and reported costs likewise are consistent with cash outlays.Therefore,there will not be a substantial difference between a firm's reported profits and its actual cash flow for the same period.
• D) The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends and the riskiness of those cash flows.
• E) EPS stands for "earnings per share," while DPS stands for "dividends per share." We would normally expect to see DPS exceed EPS.

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Definitions:

Likeness

The state, quality, or fact of being similar or akin to something else.

Constant

A value that remains unchanged and is not affected by other parameters in a given situation.

Catabolism

The metabolic process that breaks down molecules in living organisms, releasing energy.

Cata-

A prefix in medical and general terminology meaning "down," "against," "back," or "deconstructive."