Which of the following is CORRECT?
A. Firms that use "off-balance-sheet" financing, such as leasing, would show lower debt ratios if the effects of their leases were reflected in their financial statements.
B. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation.
C. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.
D. Capital, or financial, leases generally provide for maintenance by the lessor.
E. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment.
Answer: E
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All of the following objectives are reasons that service department allocations can motivate managers except to
a. instill a consideration of support costs in production managers. b. encourage production managers to help service departments control costs. c. encourage the usage of certain services. d. determine divisional profitability.
The rate of return on common shareholders' equity
a. will exceed the rate of return on assets whenever the rate of return on assets exceeds the after-tax cost of borrowing and any dividends required for preferred shareholders. b. will not exceed the rate of return on assets whenever the rate of return on assets exceeds the after-tax cost of borrowing and any dividends required for preferred shareholders. c. will always exceed the rate of return on assets. d. will never exceed the rate of return on assets. e. none of the above
Rhetorical questions
a. are used to close a conversation. b. include the word "exactly." c. do not require an answer. d. none of these choices.
Identify the account used by businesses to record the transfer of assets from a business to its stockholders:
A. The dividends account. B. A revenue account. C. A liability account. D. The common stock account. E. An expense account.