If the Pro Forma Balance Sheet Shows That Total Assets

question 66

Multiple Choice

If the pro forma balance sheet shows that total assets must increase by $400,000 while retaining a debt-equity ratio of.75 then:

• A)Debt must increase by $300,000
• B)Equity must increase by the full $400,000
• C)Debt must increase by $171,429
• D)Equity must increase by $100,000

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Definitions:

Operating Lease

A lease agreement that allows for the use of an asset but does not convey rights of ownership to the lessee.

Capital Lease

A leasing arrangement that is treated like an asset purchase for accounting purposes, where the lessee records the leased asset as if it has been purchased.

Market Interest Rate

The prevailing rate of interest determined by supply and demand in the money market, influencing the rates borrowers pay and lenders receive.

Contractual Interest Rate

The interest rate stated in a contract or agreement between a borrower and a lender.