All Things Being Otherwise Equal,when a Business Entity Is Created,choosing

question 18

Multiple Choice

All things being otherwise equal,when a business entity is created,choosing a significantly higher financial leverage ratio (than the rule of the three thirds would command) will generally lead to (compared to a lower leverage ratio) :

• A) Larger earnings and larger earnings per share
• B) Lower earnings and higher ROE
• C) Higher earnings and lower ROE
• D) Lower earnings and lower earnings per share

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Definitions:

Sales Returns

Transactions where customers return previously purchased merchandise, leading to a reduction in sales revenue.

Allowance for Doubtful Accounts

An accounting provision representing the estimated amount of receivables that may not be collected, reducing the accounts receivable balance to its net realizable value.

Net Realizable Value

The estimated selling price of goods, minus the costs of their sale or disposal, used in valuing inventory and accounts receivable for financial reporting.

Write-Off

A write-off involves removing an asset from the financial statements because it is no longer collectible or has no value.