All Else Equal, If a Firm Buys Inventory Using Trade

question 49

Multiple Choice

All else equal, if a firm buys inventory using trade credit, then its

• A)financial debt-to-capital will increase, and its financial debt-to-assets will decrease.
• B)financial debt-to-capital and financial debt-to-assets ratios will both increase.
• C)financial debt-to-capital will decrease, and its financial debt-to-assets will increase.
• D)financial debt-to-capital will be unchanged, and its financial debt-to-assets will decrease.

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Definitions:

Intangible Assets

Non-physical assets such as patents, copyrights, trademarks, software, and goodwill that have value to a business.

Goodwill

The excess value of the purchase price over the fair market value of the assets acquired and liabilities assumed in a business combination.

Recoverable Amount

The higher of an asset's fair value less costs to sell and its value in use. It's the estimated amount an entity can obtain from an asset's use or sale, covering its carrying amount.

Carrying Amount

The value at which an asset is recognized on the balance sheet after deducting accumulated depreciation and impairment charges.