DSST Business 2 — Questions and Answers
Question 1: Which financial statement shows a company's revenues, expenses, and net income over a specific period?
- Balance sheet
- Income statement (Correct answer)
- Statement of cash flows
- Statement of retained earnings
Correct answer: Income statement
The income statement (profit and loss statement) reports revenues and expenses to show net income or loss over a reporting period.
Question 2: What is the term for the interest rate that a borrower pays to a lender expressed as a percentage of the principal per year?
- Discount rate
- Prime rate
- Annual percentage rate (APR) (Correct answer)
- Federal funds rate
Correct answer: Annual percentage rate (APR)
APR is the yearly cost of borrowing expressed as a percentage of the loan principal, including fees and interest.
Question 3: In business, 'economies of scale' refers to:
- Increased costs as production expands
- Cost advantages gained as output increases (Correct answer)
- The ratio of fixed to variable costs
- Pricing based on market scale
Correct answer: Cost advantages gained as output increases
Economies of scale occur when average costs per unit decline as a company increases its production volume.
Question 4: A company's 'accounts receivable' represents:
- Money the company owes to suppliers
- Cash held in company bank accounts
- Money owed to the company by customers (Correct answer)
- Long-term investments of the company
Correct answer: Money owed to the company by customers
Accounts receivable is a current asset representing amounts customers owe the company for goods or services already delivered.
Question 5: Which pricing strategy involves setting a high initial price and gradually lowering it over time?
- Penetration pricing
- Cost-plus pricing
- Price skimming (Correct answer)
- Value-based pricing
Correct answer: Price skimming
Price skimming starts with a high price to capture maximum revenue from early adopters, then lowers it to attract more price-sensitive buyers.
Question 6: What does the term 'liquidity' refer to in a business context?
- A company's total debt obligations
- The ease with which assets can be converted to cash (Correct answer)
- The ratio of equity to total assets
- A company's long-term profitability
Correct answer: The ease with which assets can be converted to cash
Liquidity measures how quickly and easily a company can convert its assets into cash to meet short-term obligations.
Question 7: Under the concept of 'supply and demand,' what typically happens to price when supply decreases and demand stays constant?
- Price decreases
- Price stays the same
- Price increases (Correct answer)
- Demand automatically adjusts upward
Correct answer: Price increases
When supply decreases with unchanged demand, scarcity increases and buyers compete, pushing prices upward.
DSST Business 2
Which financial statement shows a company's revenues, expenses, and net income over a specific period?