If Certain Assets Are Partially Used Up During the Accounting

question 110

Multiple Choice

If certain assets are partially used up during the accounting period,then:

• A)nothing is recorded on the financial statements until they are completely used up.
• B)a liability account is decreased or eliminated and an expense is recorded.
• C)an asset account is decreased or eliminated and an expense is recorded.
• D)nothing is recorded on the financial statements until they are replaced or replenished.

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Definitions:

Interest Tax Shield

The decrease in income tax liabilities due to permitted interest expense deductions.

Levered Firm

A corporation that has debt in its capital structure, indicating it uses borrowing (leverage) to finance its operations or expansions.

M&M Proposition I

A principle of financial theory stating that under perfect market conditions, the value of a firm is unaffected by how it is financed.

Liquidation

The process of converting assets into cash or cash equivalents by selling them in the market.