From the Creditor's Perspective,what Is the Purpose of Loan Covenants

question 13

Multiple Choice

From the creditor's perspective,what is the purpose of loan covenants?

• A) To assist government agencies in examining financial statements
• B) To help to ensure a company will be able to repay the loan
• C) To aid in forecasting future revenues and expenses
• D) To help to determine the amount of money lent to a company

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Definitions:

Specific Period

A specific period in accounting refers to a set time frame for which financial statements are prepared or to which particular financial transactions or events pertain.

Retained Earnings

The accumulated portion of net income that a company elects to keep, rather than distribute to shareholders as dividends.

Future Use

Refers to resources or assets that are intended to be utilized in upcoming periods, not immediately.

Payments

Monetary transactions involving the transfer of funds to fulfill a debt or obligation.