Which one is false? Off-balance sheet financing may be frequently used by firms

Question

Which one is false?

Off-balance sheet financing may be frequently used by firms who has stronger restrictions on bond covenant.

Off-balance sheet financing may reduce the total assets and total liabilities on B/S.

Off-balance-sheet financing mostly increases return on assets (ROA)

Generally off-balance sheet financing decreases the usefulness of accounting information

Off-balance sheet financing may be frequently used by firms who has stronger restrictions on bond covenant.

Off-balance sheet financing may reduce the total assets and total liabilities on B/S.

Off-balance-sheet financing mostly increases return on assets (ROA)

Generally off-balance sheet financing decreases the usefulness of accounting information

Explanation / Answer

b. Off-balance sheet financing may reduce the total assets and total liabilities on B/S is false. Off-balance sheet financing means a company does not include a liability on its balance sheet. In off-balance sheet financing, large capital expenditures are kept off a company's balance sheet to keep the debt - equity and leverage ratios low. Examples of off-balance sheet financing include joint ventures, reasearch and development (R&D) partnerships and some forms of opertaing leases. Since such financing is kept off the balance sheet, it has no effect on the total assets and total liabilities on B/S.

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