The Use of Financial Leverage Will Be Detrimental to a Firm's

question 96

Multiple Choice

The use of financial leverage will be detrimental to a firm's ROE if the:

• A) firm currently has no long-term debt.
• B) firm's current ratio is greater than 1.
• C) interest expense exceeds the tax liability.
• D) interest rate on debt exceeds the firm's ROA.

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Definitions:

Temporary Accounts

Accounts used to accumulate data related to one accounting period, including revenue, expense, and withdrawal accounts, which are closed at the end of the period.

Trial Balance Columns

Lists in a company's accounting records that show all the debit and credit balances of its accounts, used for internal checking purposes.

General Journal

A ledger where double-entry accounting transactions are initially recorded, including details such as date, accounts affected, and amounts.

General Ledger

A comprehensive set of accounts that records all financial transactions of a business, used to prepare financial statements.