The Use of Debt Is Called

question 4

Multiple Choice

The use of debt is called:

• A)operating leverage.
• B)production leverage.
• C)financial leverage.
• D)total asset turnover risk.
• E)business risk.

Classify liabilities correctly on the balance sheet.

Understand the accounting treatment for defined benefit plans.

Calculate the proceeds from and cost of financing with notes payable, including discounting notes.

Record financial transactions related to notes payable, including issuance, payment, and conversion from accounts payable.

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Definitions:

Variable Costs

Costs that change in proportion to the amount of goods or services produced or sold by a business.

Depreciation Tax Shield

The reduction in income tax that results from the allowance for depreciation expenses on an asset, which can lower taxable income.

Marginal Tax Rate

The rate of tax that applies to the last dollar of the taxpayer's income, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Depreciated Fixed Asset

A long-term asset that has decreased in value due to wear and tear, age, or obsolescence.