T or F An increasing debt/equity ratio indicates a company is funding more asset

Question

T or F An increasing debt/equity ratio indicates a company is funding more assets with debt and presents more risk for creditors. (if false, identify error)

T or F Relatively low, unstable coverage for the times interest earned ratio would indicate a good record of covering interest expense. (if false, identify error)

In considering equity and debt financing, which of the following statements is false?

a. Compared to debt financing, equity is a more expensive source of funding

b. Both interest and dividend payments are required to be made by the issuing corporation

c.   In general, the higher the proportion of total debt to equity ratio, the great the likelihood the firm will have difficulty in meeting its obligations in some future period

d. Most firms prefer to have both debt and equity financing

e. Debt to assets ratio represents: for every $1 of assets, the portion of assets funded by debt

T or F The changes in Accounting Standards for leases will require more leases be capitalized and reflected on the balance sheet. The impact of this change is anticipated to increase the debt/equity ratio. Adoption is required by 2020. (if false, identify error)

Explanation / Answer

               T (True)

F – False.

A low and unstable coverage for the times interest earned ratio would indicate a bad record of covering interest expense.

a. True

b. False

c. True

d. True

e. True

       4.   Changes in accounting standards for leases will require more leases to be capitalized and      

             reflected on the balance sheet.

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