Which of the Following Are Valid Reasons for a fiRm

question 42

Multiple Choice

Which of the following are valid reasons for a firm to reduce or eliminate its cash dividends? I. The firm is on the verge of violating a bond restriction which requires a current ratio of 1.8 or
Higher.
II) A firm has just received a patent on a new product for which there is strong market demand and
It needs the funds to bring the product to the marketplace.
III) The firm can raise new capital easily at a very low cost.
IV) The tax laws have recently changed such that dividends are taxed at an investor's marginal rate
While capital gains are tax exempt.

• A)I and III only.
• B)II and IV only.
• C)II, III, and IV only.
• D)I, II, and IV only.
• E)I, II, III, and IV.

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Definitions:

Uncollectibles

Debts from customers that are considered impossible to collect and are therefore written off as a loss.

Expense with Revenues

Represents the relationship between the costs incurred and the revenues generated in a specific period.

Direct Write-off Method

An accounting method for treating bad debts that writes off specific invoices as uncollectable only at the time they are deemed irrecoverable.

Allowance Method

An accounting technique used to estimate and account for doubtful accounts, providing a more accurate reflection of realizable revenue.