What Type of Tax Consequence Is Associated with the Recovery

question 12

Multiple Choice

What type of tax consequence is associated with the recovery of net working capital?

• A) A firm must pay tax and a penalty.
• B) There is no tax consequence.
• C) The firm must pay capital gains tax.
• D) The firm must pay ordinary income tax.

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Definitions:

Authors' Royalties

Authors' royalties are payments made to authors from publishers or producers, based on a percentage of sales of their work.

Fixed Cost

Expenses that do not change with the level of goods or services produced by a business, such as rent, salaries, and insurance.

Debt-to-Total-Assets Ratios

A measure that indicates what proportion of a company's assets is financed through debt.

Equity Ratios

Equity ratios measure a company's financial leverage and are calculated by dividing total equity by total assets.