Instead of Increasing Its Long-Term Debt by Borrowing Money from a Bank

question 37

Multiple Choice

Instead of increasing its long-term debt by borrowing money from a bank to purchase new stereo equipment,Jay's Jams Inc.decides to lease the equipment on a long-term basis.How will the long-term debt ratio differ if the lease option is selected over the bank-debt option?

• A) The ratio will be lower under the leasing option.
• B) The ratio will be higher under the leasing option.
• C) The ratio will be the same regardless of the financing method selected.
• D) The ratio effects are unknown without the amount of the lease obligation.

---

Definitions:

Cash Payments

Transactions where the payment for goods or services is made using currency or banknotes rather than checks or electronic transfers.

House Hunting Expenses

Costs incurred while searching for a new home, often not deductible on U.S. federal tax returns except in specific relocating job circumstances.

Lodging

Accommodation in a residence or hotel for a short-term stay, often considered for deductible travel expenses in business contexts.

Recognized Gain

The portion of a gain on the sale of an asset that must be reported as income for tax purposes.