Which of the Following Is TRUE

question 138

Multiple Choice

Which of the following is TRUE?

• A)For most companies the market/book ratio is less than 1.0 because book value is a conservative estimate of what a firm's equity is really worth.
• B)For most companies the market/book ratio is greater than 1.0 because the stock market tends to overvalue things.
• C)For most companies the market/book ratio is greater than 1.0 because book value is a backward-looking measure based largely on historical costs,whereas market value is forward looking and depends on how investors believe the company will perform in the future.
• D)For most companies the market/book ratio is very close to 1.0 because on average,book value provides a good estimate of the market value of a firm's equity.

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Definitions:

Double-Entry Bookkeeping

An accounting system where every entry to an account requires a corresponding and opposite entry to a different account.

Fraud

The intentional deception made for personal gain or to damage another individual or entity.

Journalizing

The process of recording financial transactions in the accounting journal.

Journal

A basic accounting record where all the financial transactions of a business are initially recorded in chronological order before being posted to accounts in the ledger.