Which of the Following Statements Is True

question 7

Multiple Choice

Which of the following statements is true?

• A)Bankruptcy costs do not concern shareholders because they are borne entirely by other parties.
• B)Debtholders rarely realise the potential for bankruptcy and do not demand a higher rate of interest on their loans in compensation.
• C)Debtholders will not demand higher interest rates on loans because in so doing they may increase the likelihood of bankruptcy.
• D)For any given level of business risk,the higher the financial risk,the greater the probability of bankruptcy.

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Definitions:

Outstanding Checks

Checks that have been written and recorded in financial accounts but have not yet been cashed or cleared by the bank.

Bank Reconciliation

A process that explains the difference between the bank balance shown in an organization's bank statement, as supplied by the bank, and the corresponding amount shown in the organization's own accounting records at a particular point in time.

Adjusting Journal Entries

Journal entries made at the end of an accounting period to account for incomes and expenses in the period they occur, ensuring that the financial statements are accurate.

Reconciliation Report

A document that compares two sets of records to ensure they are in agreement and accurate.