If a Corporation Has a High Debt-To-Equity Ratio, the IRS

question 89

True/False

If a corporation has a high debt-to-equity ratio, the IRS may reclassify deductible interest payments as nondeductible dividends.

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Definitions:

Goodwill

An intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets, representing factors such as reputation, brand, and customer relationships.

Entity Method

A consolidation approach where investments are recorded at the purchase cost, adjusted for the parent company's share in the subsidiary's post-acquisition profits or losses.

Gross Margin

A company's revenue minus its cost of goods sold, divided by revenue, expressed as a percentage, indicating the percentage of revenue that exceeds the cost of goods sold.

Inventory

Inventory comprises the goods and materials a business holds for the purpose of resale or production.