Reference no: EM131978862

1. The principle of balance sheet identity means that total assets are the same amount as:

a. Total liabilities plus Total Equity

b. Total Liabilities plus Total Shareholders' Equity

c. Total Liabilities plus Total Owners' Equity

d. The right side of the balance sheet

e. All of the above

2. The use of debt by a firm is called "financial leverage in the capital structure" and borrowing is a choice, as not all firms utilize debt. Nonetheless, public policy offers a benefit to all firms that borrow and this can be described as follows:

a The depreciation expense on old equipment is deductible on a firm's income statement, which reduces taxable income and, in turn, reduces taxes due.

b The interest expense on debt is deductible on a firm's income statement, which reduces taxable income and, in turn, reduces taxes due.

c The payment of dividends to owners of a firm is a deductible expense on a firm's income statement, which reduces taxable income and, in turn, reduces taxes due.

d none of the above are true.