Indicate whether each of the following statement is true or false. Briefly provide a reason for each answer.

1. If a company obtains a loan to finance current assets during a recession, such a loan can be regarded as self-liquidating.
2. A profitable company is automatically a solvent company.
3. When accountants prepare financial statements, the cost of fixed asset investment and, research and development expenses are spread over several years.
4. If companies A and B are identical in all respects except that A is levered and B is unlevered, the ROE and ROA are the best measures of firms' earnings capacity.
5. If a firm reduces its retained earnings, its net income will increase automatically.