All Things Being Equal,firms Would Typically Prefer to Disclose Low

question 73

Multiple Choice

All things being equal,firms would typically prefer to disclose low levels of debt because:

• A) Any debt is a bad thing in the capital structure of a business.
• B) Additional debt may lead to a technical breach of a firm's contractual agreements with existing debt-holders and lead to the possible wind-up of the business or the need to renegotiate the contract.
• C) The level of recognised debt will affect the profitability of the business.
• D) Recognising debt in the income statement may lead to a decrease in management bonuses that are based on the times-interest-earned and debt-to-assets ratios.

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Definitions:

Cash Disbursements

Outflows of cash for expenses, investments, and other payments made by a business.

Materials Purchases

The acquisition of raw materials or supplies required for the production of goods or provision of services.

Payment Discount

A reduction in the invoice amount offered by a seller to the buyer in return for early payment within a specified time frame.

Cash Balance

The amount of cash on hand or in bank accounts, immediately available to a business or individual.