Users of Financial Statements Consider a Lower Debt to Total

question 24

Multiple Choice

Users of financial statements consider a lower debt to total assets ratio to be

• A)worse because it indicates higher risk of defaulting on debt payments.
• B)better because it indicates that a company has lower leverage.
• C)worse because it indicates reduced risk of defaulting on debt payments.
• D)better because it indicates that a company has higher leverage.

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Definitions:

Liquidation

The process of winding up a company's financial affairs by selling off its assets to pay creditors and distribute any remaining assets to the shareholders.

Partnership Liabilities

Debts and obligations for which partners in a business partnership are mutually responsible.

Salaries

Employee pay based on a specified amount rather than an hourly rate.

Interest

The cost of borrowing money or the return on invested funds, typically expressed as a percentage rate over a period of time.