Events & Promotions
|
|
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.
Customized
for You
Track
Your Progress
Practice
Pays
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
May 0510:00 AM PDT
-11:00 AM PDT
GMAT Inequalities is a high-frequency topic in GMAT Quant, but many students struggle because the concepts behave differently from standard algebra. Understanding the right rules, patterns, and edge cases can significantly improve both speed and accuracy.- May 06
08:30 AM PDT
-09:30 AM PDT
In Episode 3 of our GMAT Ninja Critical Reasoning series, we tackle Discrepancy, Paradox, and Explain an Oddity questions. You know the feeling: the passage gives you two facts that seem completely contradictory.... - May 08
08:00 AM PDT
-08:30 AM PDT
Join the special YouTube live-stream for selecting the winners of GMAT Club MBA Scholarships sponsored by Juno live. Watch who gets these coveted MBA scholarships offered by GMAT Club and Juno.
16 Sep 2014, 02:01
Kudos
Bookmarks
Mark-to-market accounting, a bookkeeping technique by which estimated future revenue is counted as money in hand, can be used to make a company appear more profitable. This is especially true for large corporations in the utility and energy sectors, where multi-million dollar contracts are often signed for services that will not be delivered for several years. Corporate executives are then able to quote large annual revenue figures to stockholders, even when actual cash flow is almost nonexistent.
Based on the information above, which of the following could most properly be concluded about companies that use mark-to-market accounting?
A. Executives routinely exaggerate the net worth of these companies by millions of dollars a year.
B. Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date.
C. Executives of these companies are all dishonest and seek to deceive shareholders.
D. Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.
E. These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great.
Based on the information above, which of the following could most properly be concluded about companies that use mark-to-market accounting?
A. Executives routinely exaggerate the net worth of these companies by millions of dollars a year.
B. Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date.
C. Executives of these companies are all dishonest and seek to deceive shareholders.
D. Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.
E. These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great.
16 Sep 2014, 02:01
Kudos
Bookmarks
Official Solution:
Mark-to-market accounting, a bookkeeping technique by which estimated future revenue is counted as money in hand, can be used to make a company appear more profitable. This is especially true for large corporations in the utility and energy sectors, where multi-million dollar contracts are often signed for services that will not be delivered for several years. Corporate executives are then able to quote large annual revenue figures to stockholders, even when actual cash flow is almost nonexistent.
Based on the information above, which of the following could most properly be concluded about companies that use mark-to-market accounting?
A. Executives routinely exaggerate the net worth of these companies by millions of dollars a year.
B. Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date.
C. Executives of these companies are all dishonest and seek to deceive shareholders.
D. Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.
E. These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great.
General Approach
The general approach for GMAT critical reasoning questions is to understand the argument presented in the passage and then evaluate the answer choices in relation to the argument. In this case, the argument discusses the use of mark-to-market accounting, a technique that can inflate revenues and potentially give a misleading view of a company's profitability. After understanding this concept, we should check which answer choice best corroborates, or logically follows from, the information presented in the passage.
Correct Answer
Answer D (Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.) is correct. The passage argues that mark-to-market accounting can inflate revenue figures, thereby giving a misleading view of a company's profitability. This suggests that other information, beyond simply annual revenue figures, would be necessary to accurately determine a company's profitability.
Incorrect Answers
(A) Executives routinely exaggerate the net worth of these companies by millions of dollars a year. The passage does not support this statement. It explains that mark-to-market accounting can inflate revenue figures, but it never mentions anything about executives intentionally exaggerating a company's net worth.
(B) Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date. The passage doesn’t imply that mark-to-market accounting is a necessity. It simply states that it is a technique that can be used, especially by large corporations in the utilities and energy sectors.
(C) Executives of these companies are all dishonest and seek to deceive shareholders. This statement is too strong and not supported by the passage. While the passage suggests that mark-to-market accounting can give a misleading view of a company's profitability, it does not claim that all executives who use this technique are dishonest or deceptive.
(E) “These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great. The passage does not make any predictions about companies collapsing due to discrepancies between reported annual revenue and cash flow. It simply states that mark-to-market accounting can inflate revenue figures.
Answer: D
Mark-to-market accounting, a bookkeeping technique by which estimated future revenue is counted as money in hand, can be used to make a company appear more profitable. This is especially true for large corporations in the utility and energy sectors, where multi-million dollar contracts are often signed for services that will not be delivered for several years. Corporate executives are then able to quote large annual revenue figures to stockholders, even when actual cash flow is almost nonexistent.
Based on the information above, which of the following could most properly be concluded about companies that use mark-to-market accounting?
A. Executives routinely exaggerate the net worth of these companies by millions of dollars a year.
B. Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date.
C. Executives of these companies are all dishonest and seek to deceive shareholders.
D. Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.
E. These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great.
General Approach
The general approach for GMAT critical reasoning questions is to understand the argument presented in the passage and then evaluate the answer choices in relation to the argument. In this case, the argument discusses the use of mark-to-market accounting, a technique that can inflate revenues and potentially give a misleading view of a company's profitability. After understanding this concept, we should check which answer choice best corroborates, or logically follows from, the information presented in the passage.
Correct Answer
Answer D (Information in addition to quoted annual revenue figures is needed in order to tell how profitable a company really is.) is correct. The passage argues that mark-to-market accounting can inflate revenue figures, thereby giving a misleading view of a company's profitability. This suggests that other information, beyond simply annual revenue figures, would be necessary to accurately determine a company's profitability.
Incorrect Answers
(A) Executives routinely exaggerate the net worth of these companies by millions of dollars a year. The passage does not support this statement. It explains that mark-to-market accounting can inflate revenue figures, but it never mentions anything about executives intentionally exaggerating a company's net worth.
(B) Mark-to-market accounting, though dangerous, is a necessity in corporations which contract for services that will not be delivered until a later date. The passage doesn’t imply that mark-to-market accounting is a necessity. It simply states that it is a technique that can be used, especially by large corporations in the utilities and energy sectors.
(C) Executives of these companies are all dishonest and seek to deceive shareholders. This statement is too strong and not supported by the passage. While the passage suggests that mark-to-market accounting can give a misleading view of a company's profitability, it does not claim that all executives who use this technique are dishonest or deceptive.
(E) “These companies will eventually collapse when the difference between reported annual revenue and cash flow has grown too great. The passage does not make any predictions about companies collapsing due to discrepancies between reported annual revenue and cash flow. It simply states that mark-to-market accounting can inflate revenue figures.
Answer: D
30 Jan 2018, 21:38
Kudos
Bookmarks
Team/Expert,
Answer choice D is the correct answer. I am trying to understand where it is mentioned or where argument seeks to explain some one on profit , or to stakeholders. Choice E was my answer to conclude since if technique is followed by large sector companies then they will eventually fall accordingly.
Thanks - AN
Answer choice D is the correct answer. I am trying to understand where it is mentioned or where argument seeks to explain some one on profit , or to stakeholders. Choice E was my answer to conclude since if technique is followed by large sector companies then they will eventually fall accordingly.
Thanks - AN
