Question

9)         Calculating the debt-to-assets ratio measures how efficiently a company is using its assets in the normal scope of business.

            ⊚        true
            ⊚        false

10)       In a market, creditors are resource providers.

            ⊚        true
            ⊚        false

11)       A high debt-to-asset ratio may indicate that a company has a high level of debt risk.

            ⊚        true
            ⊚        false

12)       Manhattan Company recorded an adjusting entry to accrue interest owed of $300 as of December 31, Year 1. When the related note was paid during Year 2, the company paid $450 in interest. Which of the following journal entries correctly records this Year 2 transaction? (Assume that the entry to record the payment of the note itself was recorded in a separate journal entry.)

A)

Interest expense	150
Cash		150

B)

Interest expense	450
Cash		450

C)

Interest expense	150
Interest payable	300
Cash		450

D)

Interest expense	450
Cash		300
Interest payable		150

13)       The stockholders of a business have a priority claim to its assets in the event of liquidation.

            ⊚        true
            ⊚        false

Answer 1

9) False

Debt to equity ratio shows the degree to which company has used Debt to finance its Assets.

10) True

Creditors lend resources in exchange of a fees or interest.

11) True

High debt to equity ratio means that company has financed a major portion of its assets through debt. So, higher the debt higher the risk.

12) (C) Interest expense   150

Interest payable    300

To Cash 450

The interest payable 300 was booked as an expense in year one and now the remain amount 150 was accounted as an expense in year 2. Therefore in year 2 we write off the liability of interest payable 300 and book expense for current year 150, paid through cash 450.

13) Flase

In the event of liquidation the Secured creditors have priority claim over company's assets.Next are unsecured creditors and last are the stockholders.