Answered: A note of caution in interpreting the…

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter13: Auditing Debt, Equity, And Long-term Liabilities Requiring Management Estimates

Section: Chapter Questions

Problem 7CYBK

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A note of caution in interpreting the debt ratio is that ____________

(a) all debt decreases liquidity ratios.

(b) financing arrangements, such as leases, may be off-balance sheet arrangement and not be classified as debt on the balance sheet.

(c) financing arrangements, such as leases, may be classified as debt when in fact they do not require interest payments.

(d) long-term debt may be inflated because of a desire to reduce the current ratio.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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