Which of the Following Reasons for Considering Long-Term Loans Inherently

question 44

Multiple Choice

Which of the following reasons for considering long-term loans inherently more risky thanshort-term loans is most accurate?

• A) There is a greater chance that a borrower will default in a longer time frame.
• B) The loan values are very sensitive to changes in market interest rates.
• C) The penalties for closing out a long-term loan early make them unattractive to many investors.
• D) Long-term loans typically have ongoing costs that accumulate over the life of the loan.

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Definitions:

Ordinary Expense

In tax terminology, ordinary expense refers to any expense common and accepted in your trade or business operation.

Income Recognition

The accounting principle stating that income should be recognized in the accounting period in which it is earned, regardless of when the cash is received.

Partnership %

A percentage representation of an individual partner's stake in a partnership, correlating to their share of profits, losses, and liabilities.

Partnership Basis

The amount of a partner's investment in a partnership, used to determine the tax treatment of distributions, additional contributions, and share of partnership income or loss.