Interest Is Considered A(n)

question 15

Multiple Choice

Interest is considered a(n)

• A) explicit cost when the firm pays a bank to borrow money.
• B) implicit cost when the firm owner uses his or her own funds to buy capital.
• C) return to entrepreneurship if the firm owner uses her own funds to buy capital.
• D) form of depreciation if the cost of borrowing increases.
• E) Both answers A and B are true.

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Definitions:

Available-for-sale Securities

Financial assets not classified as held-to-maturity or trading securities, which can be sold in response to needs for liquidity or changes in interest rates, among other reasons.

Recorded

The act of documenting financial transactions in the accounting records.

Controlling Interest

Ownership of a sufficient portion of a company's stock to influence or control its activities and decisions.

Valuation Allowance Account

An account used to offset the value of deferred tax assets due to the likelihood that they will not be realized.