Which of the Following Statements Is True Concerning the Evaluation

question 82

Multiple Choice

Which of the following statements is true concerning the evaluation of solvency ratios for a company?

• A)A lower debt-to-equity ratio means the company is more risky.
• B)A lower interest coverage ratio means that the company is more risky.
• C)A higher interest coverage ratio means that the company is more risky.
• D)A higher interest coverage ratio and a higher debt-to-equity ratio mean that a company is more risky.

---

Definitions:

Allowance Account

A contra account related to accounts receivable that represents the estimate of receivables that are likely to be uncollectible.

Allowance Account

A contra-asset account used to estimate and offset losses from potentially uncollectible accounts receivable.

Debit Balance

An accounting entry that represents a situation where debits exceed credits in an account, indicative of assets or expenses.

Adjusting Entry

A journal entry made in accounting records to update the balances of accounts at the end of an accounting period, ensuring that revenues and expenses are matched accurately.