SOLVED

6.4  Using Financial Statements to Evaluate a Corporation 1) What are liabilities? A) anything of value owned by a person or a business B) anything a person or a business owes to entities outside the business C) the total cost of labor for a firm D) only those unpaid expenses for which a business or person is making interest payments 2) An explicit cost is A) a nonmonetary opportunity cost. B) a cost specifically related to government rules and regulations. C) a cost that involves spending money. D) a cost unique to corporations. 3) An asset is A) anything of value owned by a person or a firm. B) a payment by a corporation to its shareholders. C) a nonmonetary opportunity cost. D) anything owed by a person or a firm. 4) Which of the following is an example of an implicit cost a firm might incur? A) the out-of-pocket expense to hire resources B) taxes owed to the state and Federal governments C) the rental value of the office space the company owns and uses for itself D) the revenue a firm generates in using its resources 5) What is accounting profit? A) gross revenue minus explicit costs B) gross revenue minus implicit costs C) gross revenue minus explicit and implicit costs D) the same as economic profit 6) Which of the following would explain why accounting profit might be greater than economic profit? A) A firm has implicit costs as well as explicit costs. B) A firm has only explicit costs. C) A firm’s net income is greater than its accounting profit. D) A firm’s net income is less than its accounting profit. 7) A normal rate of return refers to the ________ that investors must earn on the funds they invest in a firm, expressed as a percentage of the amount invested. A) minimum amount B) maximum amount C) total amount D) profit 8) Laura’s Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs. The restaurant earns $1.3 million in revenues and has $5 million in net worth. Based on this information, what is economic profit for Laura’s Pizza Place? A) $200,000 B) $400,000 C) $500,000 D) $2.8 million 9) Laura’s Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs. The restaurant earns $1.3 million in revenues. Based on this information, what is accounting profit for Laura’s Pizza Place? A) $200,000 B) $400,000 C) $500,000 D) $900,000 10) Tanesha sells homemade candles over the Internet. Her annual revenue is $64,000 per year, the explicit costs of her business are $17,000, and the opportunity costs of her business are $22,000. What is her accounting profit? A) $17,000 B) $22,000 C) $47,000 D) $64,000