Question

Borrowing money in a manner designed to avoid having to record the resulting obligation as a liability in the financial statements is referred to as:

A) compensating balance financing

B) off-balance sheet financing

C) contingent financing

D) deferred financing

Answer 1

Correct answer is B

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In off-balance-sheet financing, extensive capital expenditures are stayed with off a's balance sheet to keep the debt to equity (D/E) and leverage ratios low, particularly if the consideration of a substantial use would break negative debt contracts. Cases of off-balance-sheet financing incorporate joint ventures, research and development (R&D) organizations, and working leases, where the benefit itself is kept on the lessor's balance sheet, and the renter reports just the required rental cost for utilization of the advantage.

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