Which of the Following Is True of Debt Financing

question 149

Multiple Choice

Which of the following is true of debt financing?

• A) Elected political officials will find debt financing attractive because it allows them to provide voters with visible current benefits while pushing the more visible costs into the future.
• B) Debt financing is unattractive to elected political officials because voters recognize that excessive debt will lead to the future collapse of the economy.
• C) Debt financing is attractive to elected political officials because countries with a higher debt to GDP ratio generally grow more rapidly.
• D) Elected political officials will be reluctant to run budget deficits  because they recognize that taxes will have to be raised in the future to pay the interest on the larger amount of outstanding debt.

---

Definitions:

Completed-Contract Method

An accounting method where revenue and expenses are recorded only when a contract is completed, used primarily for long-term projects.

Percentage-Of-Completion Method

An accounting technique that recognizes revenue and expenses related to long-term projects as a percentage of the work completed during the period.

Cumulative Pretax Income

The total pre-tax income earned by a company over a specified period, before any taxes are deducted.

Useful Life

The period over which an asset is expected to be usable by an entity, affecting its depreciation or amortization schedules.