A Firm Has Just Ended the Calendar Year Making a Sale

question 112

Multiple Choice

A firm has just ended the calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. One possible problem this firm may face is ________.

• A) low profitability
• B) insolvency
• C) inability to receive credit
• D) high leverage

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Definitions:

Consolidated Income

The total net income of a parent company and its subsidiaries, after accounting for the share of income pertaining to noncontrolling interests.

Subsidiaries

Companies that are owned or controlled by another company, known as the parent company, through a majority of the voting stock.

Domestic Firm

A company that operates primarily within the borders of its home country and is subject to its home country's jurisdiction and regulations.

Ownership Interest

Indicates an individual's or entity's legal rights and stakes in a company or property.