Streeter & Sons is a regional service company that has been in business for a few years, but has not employed a controller or anyone else full-time to keep track of its financial state. The company needs to take a good look at its financial state to determine whether it needs to make any changes in its practices, in order to prevent possible financial meltdown. Which of the following, if true, would strengthen the case that Streeter & Sons is profitable?
A) The company's sales revenue is low relative to its cost of goods sold.
B) The company's cost of goods sold is low relative to its sales revenue.
C) The company has had the same number of customers for some time.
D) The company has had the same owners over its lifetime.
E) The company's selling expenses are high relative to its administrative expenses.

Question

Quizplus · Accepted Answer

A low cost of goods sold relative to sales revenue indicates that the company is able to generate profits after accounting for the cost of producing its goods or services. Therefore, a low cost of goods sold would strengthen the case that Streeter & Sons is profitable. Options A, C, D, and E do not provide information relevant to the profitability of the company.

Streeter & Sons Is a Regional Service Company That Has