Your New Firm Is Operating in an All-Cash Environment Without

question 17

Multiple Choice

Your new firm is operating in an all-cash environment without taxes.You sold $1,000 of inventory for three times the amount you paid for it.If this was the only transaction,which of the following would most closely match the entries on your income statement?

• A)Revenues = $1,000,expenses = $1,000,profit = $0
• B)Cash increases by $3,000,inventory decreases by $1,000,and retained earnings increases by $2,000.
• C)Revenues = $3,000,expenses = $0,profit = $3,000
• D)Revenues = $3,000,expenses = $1,000,profit = $2,000

---

Definitions:

Insurable Interest

A legal requirement for obtaining insurance policies, stipulating that the policyholder must stand to suffer a financial or personal loss from the insured event.

Appraisal Clause

A provision in insurance policies allowing for a neutral party to determine the value of property or the extent of damage in case of disagreement.

Insurance Policy

A contract between an insurance company and the policyholder which outlines the terms, coverage, and conditions under which the insurer agrees to compensate the insured for losses.

Impartial

Not biased, fair; not favoring one side over another.