When Rick Found Out That Ryan's Liabilities Exceeded His Assets

question 29

True/False

When Rick found out that Ryan's liabilities exceeded his assets by $15,000, he forgave Ryan the $1,000 he owed Rick in hoping that Ryan might get back on his feet. Ryan is allowed to exclude the $1,000 from income.

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Definitions:

Capital Structure

Capital Structure refers to the mix of debt and equity financing a company uses to fund its operations and growth.

M&M Proposition I

A principle of corporate finance stating that, under certain conditions, the value of a company is not affected by how it is financed, regardless of whether the company is financed by debt or equity.

Value of the Firm

The total worth of a company based on its current market capitalization plus any debts, and minus any cash on the company's balance sheet.

Interest Tax Shield

The decrease in income tax liabilities due to permitted interest expense deductions.