Managers Who Are Evaluated Based on the Accounting Rate of Return

question 7

Multiple Choice

Managers who are evaluated based on the accounting rate of return model are reluctant to use ________ for capital budgeting decisions.

• A) payback period model
• B) real options model
• C) discounted cash flow models
• D) return on investment model

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Definitions:

Owner's Capital Account

An equity account that represents the owner's invested capital plus any retained earnings or minus any withdrawals.

First Closing Entry

The first journal entry in the closing process that transfers revenue and the expense account balances to the owner’s capital account as either a net income or a net loss.

Owner's Equity

The residual interest in the assets of a business after all liabilities are deducted, essentially the owner's share of the company's net assets.

Revenues

The total amount of money received by the company for goods sold or services provided during a specific time period before any expenses are subtracted.