The Debt Payments-To-Income Ratio Is

question 32

Multiple Choice

The debt payments-to-income ratio is:

• A)calculated by dividing total liabilities by net worth.
• B)calculated by dividing monthly debt payments (excluding mortgage payments)by net monthly income.
• C)determined by dividing your assets by your liabilities.
• D)a useless ratio for determining your credit capacity.
• E)rarely used by creditors in determining credit worthiness.

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Definitions:

Historical Cost

The original purchase price or cost of acquiring an asset, not adjusted for inflation or market changes.

Equity Method

An accounting technique used to record investments in other companies, recognizing the investor's share of the investee's net income.

Parent Company

A company that holds enough voting stock in another firm to control management and operations by influencing or electing its board of directors.

Consolidated Financial Statements

Financial reports that combine the accounts of a parent company and its subsidiaries into a single document.