A Note of Caution in Interpreting the Debt Ratio Is

question 56

Multiple Choice

A note of caution in interpreting the debt ratio is that

• A)All debt decreases liquidity ratios.
• B)Financing arrangements,such as leases,may be off-balance sheet arrangement and not be classified as debt on the balance sheet.
• C)Financing arrangements,such as leases,may be classified as debt when in fact they do not require interest payments.
• D)Long-term debt may be inflated because of a desire to reduce the current ratio.

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Definitions:

Net Income

The total earnings of a company after subtracting all expenses, taxes, and costs, also known as the bottom line.

End-of-Period Spreadsheet

A financial summary prepared at the close of an accounting period, emphasizing the consolidation and reporting of financial results and activities.

Depreciation Expense

Distributing the expense of a physical asset across its lifespan, representing the reduction in its worth as time progresses.

Unearned Revenue

Money received by a company for products or services that have not yet been delivered or completed, considered a liability until the revenue is earned.