If a Debenture Is Subordinated, It

question 27

Multiple Choice

If a debenture is subordinated, it:

• A) has a higher priority status than specified creditors.
• B) is secondary to equity.
• C) must give preference to the specified creditor in the event of default.
• D) has been issued because the company is in default.

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Definitions:

Discount on Bonds Payable

The difference by which the bond's face value exceeds its selling price, reducing the cost to the issuer.

Straight-Line Method

A method of calculating depreciation of an asset which assumes the asset will lose an equal amount of value each year over its useful life.

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its interest payments on outstanding debt.

Creditors

Entities or individuals to whom money is owed by a business or individual for goods or services provided or as a result of a loan.