A Provision in a Loan Agreement That the Borrower Cannot

question 46

Multiple Choice

A provision in a loan agreement that the borrower cannot incur additional debt beyond a certain amount is an example of a(n) __________ covenant.

• A) absolute
• B) prohibitive
• C) negative
• D) affirmative

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Definitions:

Absorption Costing

is an accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.

Unit Product Cost

The total cost incurred to produce, manufacture, or acquire a product, divided by the total number of units produced.

Absorption Costing

A financial recording approach that encompasses all production expenses, such as direct materials, direct labor, and overhead costs, within the price of a product.

Net Operating Income

Income from normal business operations after subtracting operating expenses but before interest and taxes.