Which of the following statements is true?Multiple ChoiceDistributions to owners are tax deductible.Bonds do not have to be repaid.Interest on bonds is not tax deductible.Interest on bonds is tax deductible.Bonds always increase return on equity.
Question
Which of the following statements is true?Multiple ChoiceDistributions to owners are tax deductible.Bonds do not have to be repaid.Interest on bonds is not tax deductible.Interest on bonds is tax deductible.Bonds always increase return on equity.
Solution
The correct statement is: "Interest on bonds is tax deductible."
Here's why:
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Distributions to owners are not tax deductible. These are typically considered dividends and are not a deductible expense.
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Bonds do have to be repaid. When a company issues a bond, they are essentially borrowing money that they promise to repay at a certain time, along with interest.
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Interest on bonds is tax deductible. This is because the interest paid on bonds is considered a business expense.
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Bonds do not always increase return on equity. The impact of bonds on return on equity depends on a variety of factors, including the interest rate of the bonds and the company's profitability.
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