The Basic Premise of Unrelated Diversification Is That

question 88

Multiple Choice

The basic premise of unrelated diversification is that

• A)the least risky way to diversify is to seek out businesses that are leaders in their respective industry.
• B)the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale.
• C)the best way to build shareholder value is to acquire businesses with strong cross-business financial fit.
• D)any company that can be acquired on good financial terms and has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity.
• E)the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

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Definitions:

Journalizing

Journalizing is the process of recording transactions in the accounting journals as part of the double-entry bookkeeping system.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts, ultimately resetting the temporary accounts for the new fiscal period.

Post-closing Trial Balance

A statement created after closing entries are made, listing all active accounts and their balances to ensure debits equal credits.

Asset Accounts

Accounts that represent tangible and intangible items of value owned by a business, which can include cash, receivables, inventory, equipment, and intellectual property.