Which of the Following Statements Is CORRECT, Holding Other Things

question 2

Multiple Choice

Which of the following statements is CORRECT, holding other things constant?

• A) an increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
• B) if changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
• C) an increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
• D) an increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.
• E) firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt.

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Definitions:

Double-Entry Bookkeeping System

Bookkeeping system that has two notable characteristics: each transaction is recorded in two accounts and each account has two columns. In this system, two entries are made for each transaction: one entry as a debit in an account and one entry as a credit in another account.

Trial Balance

(1) Bookkeeping strategy to confirm accuracy in debits and credits in ledger; (2) A balance sheet reports the assets, liabilities, and stockholders’ equity of a business enterprise at a specific date.

Garbage In, Garbage Out

A principle in computing and data analysis that emphasizes the importance of quality input data to produce meaningful output or results.

Trial Balance

An accounting report that lists the balances of all ledgers in two columns (debits and credits) to ensure they are equal.