How Is Income Summary Closed If the Company Had a Net

question 13

Multiple Choice

How is Income Summary closed if the company had a net income?

• A) Debit Capital; credit Income Summary
• B) Debit Income Summary; credit Capital
• C) Debit Capital; credit Withdrawals
• D) Debit Withdrawals; credit Capital

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Definitions:

Financial Leverage

The use of borrowed funds to increase the potential return on investment.

MM Model

The MM Model, or Modigliani-Miller Theorem, is a finance theory that suggests market value of a company is determined by its earning power and risk of underlying assets, independent of its capital structure.

Cost Of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in capital budgeting to evaluate projects.

Capital Structure

The composition of a company's liabilities and equity, describing how it finances its overall operations and growth.