Which of the following statements is correct?
A)A current ratio of 1.60 means the company's current assets are probably not sufficient to pay its current liabilities.
B)The separate entity assumption requires that the financial activities of the owners of a company be reported on the company's balance sheet.
C)The cost principle states that recording activities at cost will result in the balance sheet representing the true value of the company.
D)A transaction is recorded if it has a measurable financial effect on the assets,liabilities or stockholders' equity of a business.

Question

Quizplus · Accepted Answer

A transaction is recorded if it has a measurable financial effect on the assets,liabilities or stockholders' equity of a business.A current ratio of 1.60 means the company has $1.60 in current assets for every $1.00 of current liabilities;therefore,current assets are (rather than are not)probably sufficient to pay current liabilities.The separate entity assumption (from Chapter 1)states that transactions of the owners are separate from transactions of the business;as such,the financial activities of the owners of a company would not be reported on the company's balance sheet.Following the cost principle,assets and liabilities are first recorded at cost,which is their cash-equivalent value on the date of the transaction;cost does not approximate true value.

Which of the Following Statements Is Correct