If the Return on Assets Is Positive, an Increase in Total

question 8

Multiple Choice

If the return on assets is positive, an increase in total assets will result in

• A) an increase in the return on assets.
• B) a decrease in the return on assets.
• C) no change in the return on assets.
• D) the effect cannot be determined.

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Definitions:

Direct Financing Lease

A leasing arrangement where the lessor purchases an asset and leases it out, recognizing interest income over the lease term.

Implicit Rate

The interest rate implied in a lease arrangement, calculated based on the present value of lease payments and the asset's fair value.

Incremental Borrowing Rate

The interest rate a borrower would have to pay to take on additional debt, used as a benchmark in lease accounting to measure lease liabilities in the absence of a specified rate in the lease.

Major Overhaul

Extensive repairs and maintenance on an asset that significantly extend its useful life or enhance its performance.