Which of the Following Statements Would Be the Best Interpretation

question 4

Multiple Choice

Which of the following statements would be the best interpretation of a company's low debt-to-equity ratio?

• A) The company chooses to pay cash for most of its major purchases.
• B) The company is not liquid.
• C) The company prefers to pay stockholders high dividends out of their retained earnings.
• D) The company prefers to raise funds by issuing capital stock than long-term borrowing.

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Definitions:

Allowance Account

A contra-asset account used to estimate and offset losses from potentially uncollectible accounts receivable.

Debit Balance

An accounting entry that represents a situation where debits exceed credits in an account, indicative of assets or expenses.

Adjusting Entry

A journal entry made in accounting records to update the balances of accounts at the end of an accounting period, ensuring that revenues and expenses are matched accurately.

Aging

A method used to categorize and manage accounts receivable based on the length of time they have been outstanding.