A) Which of the following is not a source of financial leverage? 1.Bonds payable
ID: 2489797 • Letter: A
Question
A) Which of the following is not a source of financial leverage?
1.Bonds payable.
2.Accounts payable.
3.Taxes payable.
4.Prepaid rent.
B)When computing the net cash provided by operating activities using the indirect approach on the statement of cash flows, which item below would NOT be added to net income?
1.Depreciation.
2.Loss on the sale of an asset.
3.Decrease in accounts payable.
4.Decrease in prepaid expenses.
C)Which of the following would be considered a cash inflow in the financing activities section of the statement of cash flows?
1.Issuing bonds payable.
2.Receiving cash from customers.
3.Sale of equipment.
4.Collection of a loan made to another company.
Explanation / Answer
Answer: A)
4. Prepaid rent
Explanation:
Financial leverage is a degree to which a company uses fixed- income securities such as debt and preferred equity.It simply means presence of a debt in the capital structure of a firm. Bonds payable, taxes payable and accounts payable all represents debt of the firm. But prepaid rent is an asset. Therefore, it is not a source of financial leverage.
Answer: B)
3. Decrease in accounts payable
Explanation:
Account payable is a current liability and decrease in current liabilities is subtracted from net income as it represents cash outflow.
Answer: C)
1.Issuing bonds payable.
Explanation:
Proceeds from issuance of bonds always results in cash inflow in the financing activities. Sale of equipment comes under investing activity, receiving cash from customers is an operating activity and Collection of a loan made to another company is also an operating activity.
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