The Concept of Leverage Is

question 183

Multiple Choice

The concept of leverage is

• A) it is appropriate to borrow if the return on the assets is greater than the cost of the financing.
• B) it is appropriate to borrow as long as the lender approves the loan.
• C) it is unfavorable to borrow funds rather than raise the capital from stockholders.
• D) that a high debt-to-equity ratio is favorable.

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Definitions:

Impairment

A decrease in the recoverable value of an asset below its carrying amount on the balance sheet, necessitating an adjustment.

Consolidated Goodwill

The excess of the purchase price over the fair value of the net assets of a subsidiary, recognized on a parent company's balance sheet when consolidating financial statements.

Consideration Transferred

The value exchanged or payment made by an acquiring entity to obtain control of another business in a business combination.

Partial Equity Method

An accounting technique used for investments, where only a portion of the investment's change in net assets is recorded.