To Realize the Effect on the "Bottom Line," or the Net

question 48

Multiple Choice

To realize the effect on the "bottom line," or the net gain from operations, from various transactions, one must consider the amount of any liabilities that are released because of the transaction. Assume a death claim entry as follows: Death proceeds-ordinary $10,000 Dividends on deposit disbursed 1,000 Cash $11,000 On first appearance, one might think that this will cause the net gain from operations to be $11,000 lower. However, if the policy has a reserve of $3,000, the effect on the net gain is only , because the reserve liability of $3,000 and the dividend liability of $1,000 will no longer be shown on the balance sheet

• A) $7,000
• B) $10,000
• C) $8,000
• D) $9,000

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Definitions:

Maturity

The time at which a financial instrument (such as a bond, loan, or investment) becomes due for payment or expires.

Protective Covenants

Clauses in a loan agreement that limit certain actions of the borrower to protect the lender, ensuring the borrower's ability to repay the debt.

Indenture

Written agreement between the corporation and the lender detailing the terms of the debt issue.

Loan Term

The duration of time over which a loan agreement is in effect, dictating the repayment schedule.