Question

If a corporation takes out a loan to purchase State of Arkansas bonds, the interest on the loan will not impact either taxable income or current earnings.

a) True
b) False

Answer 1

If a corporation takes out a loan to purchase State of Arkansas bonds, the interest on the loan will impact taxable income and current earnings.

Step-by-step explanation:

The statement is False. If a corporation takes out a loan to purchase State of Arkansas bonds, the interest on the loan will impact the taxable income and current earnings. When a corporation takes on debt through a loan, the interest paid on the loan is considered an expense and is deductible from the corporation's taxable income. This deduction reduces the corporation's taxable income, thereby impacting its current earnings.