FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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If debt creates additional expense without enough benefit through codt savings, income or capital gain , them it is not worth it
True or false?
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Companies use debt in the capital structure because interest on debt is tax deductible and reduces cost of capital.
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- What is the most obvious difference between debt and equity financing? a. Principal and interest must be repaid for debt financing. b. Dividend payments are mandatory. c. Debt financing can result in loss of control. d. Equity financing is revenue and thus taxable.arrow_forwardProvide an example of items that would be adjusted directly against equity rather than being included as part of profit or loss.arrow_forwardWhat is the definition of “opportunity cost” as it relates to the time value of money? It is the loss of a potential gain choosing one alternative over another, particularly ignoring the time value of money. It is the benefit side of the cost/benefit ratio. It is the price of selling an asset. It is the amount of money invested in saving bonds. exoplain your answer give correct answerarrow_forward
- Explain why the value of an asset is its current market value and not what you paid for it? Why is it so important to have my assets properly valued (what need might arise)? Explain why every individual needs some liquid assets. What is the problem if the amount is too low? What is the problem if the amount is too high?arrow_forwardProvide some examples of items that would be adjusted directly against equity, rather than being included as part of profit or loss. (Explain Briefly)arrow_forwardDiscuss the theoretical weaknesses of the use of the direct write off method to account for bad debt expense. Provide 2 reasons.arrow_forward
- 1. Which of the following is not a reason for the issuance of long-term liabilities? a. Debt financing offers an income tax advantage.b. Ownership interest is diluted.c. Debt may be the only available source of funds.d. Debt financing may have a lower cost.arrow_forwardWhat are the two best arguments favor debt reduction (i.e., the pros)?arrow_forwardWhich of the following is incorrect about debt financing? A. Debt financing always generates excess returns which benefits equity investors b. One benefit of debt financing is that interest on most debt is fixed c. One benefit of debt financing is that interest is a tax deductible expense d. It increases financial leveragearrow_forward
- What is the theoretical justification of the allowancemethod as contrasted with the direct write-off methodof accounting for bad debts?arrow_forwardWhy is an owner's valuation of a borrowing business excluded from stated net worth to arrive at outside net worth?arrow_forwardIn a troubled-debt situation, why might the creditor grant concessions to the debtor?arrow_forward
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