The 'Debt/equity Hypothesis' of Positive Accounting Theory Predicts Which of the Following

question 5

Multiple Choice

The 'debt/equity hypothesis' of Positive Accounting Theory predicts which of the following?

• A) The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that lower income.
• B) The lower the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income.
• C) The higher the firm's debt/equity ratio, the more likely managers are to use accounting methods that increase income.
• D) None of the given options are correct.

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Definitions:

Assembly Line

A manufacturing process in which parts are added to a product in a sequential manner to create a finished product much faster than with traditional manufacturing methods.

Standardized Engine

An engine design that is made uniform across different models and manufacturers, enhancing compatibility and efficiency.

Automobile Producer

A company involved in the design, manufacturing, and sale of cars, trucks, and other vehicles.

Federal Deposit Insurance Corporation (FDIC)

A U.S. government agency that insures deposits in banks and thrift institutions for up to $250,000 per depositor, per insured bank, for each account ownership category.