Choose the Statement That Correctly Summarizes the Tax Advantage of Raising

question 116

Multiple Choice

Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock:

• A)The amount paid by the corporation to redeem bonds at maturity date is deductible in computing income subject to corporate income tax.
• B)Interest payments are deductible in determining income subject to corporate income tax;dividends are not deductible.
• C)A corporation must pay tax on the sales price of stock issued,but is not taxed on the amount received when bonds are issued.
• D)Both interest and dividends paid are deductible in computing taxable income,but since interest must be paid annually,the corporation usually gets a larger tax deduction over the life of the bonds payable.

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Definitions:

Variable Expenses

Costs that change in proportion to the level of business activity or production volume.

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, remaining constant over a period.

Target Profit

The desired financial gain a company aims to achieve within a specific period through its operations and sales.

Fixed Expense

Charges that stay unchanged with shifts in the amount of products made or the number of sales.