Protection for Debt Holders Takes the Form of Protective Covenants

question 38

Multiple Choice

Protection for debt holders takes the form of protective covenants in the bond indenture.These covenants place restrictions on which of the following activities?

• A)the sale of assets
• B)payment of dividends
• C)the issuance of additional debt
• D)all of these are typical protective covenants

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Definitions:

Understated

A term used when financial records show a figure to be less than the actual amount, indicating a discrepancy or error.

Asset Account

Accounts that represent the different types of resources owned by a business, which have economic value and can provide future benefits.

Liability Account

records and tracks obligations or debts that a company owes to others, such as loans, mortgages, accounts payable, and other financial liabilities.

Overstated

A term used when the value of an asset or income is recorded higher than it actually is, leading to inaccuracies in financial reporting.