Which of the Following Statements Regarding Lines of Credit Is

question 30

Multiple Choice

Which of the following statements regarding lines of credit is false?

• A) The line of credit agreement may also stipulate that at some point in time the outstanding balance must be zero. This policy ensures that the firm does not use the short-term financing to finance its long-term obligations.
• B) A revolving line of credit is an uncommitted line of credit that involves an informal agreement from the bank for a longer period of time, typically two to three years.
• C) The line of credit may be uncommitted, meaning it is an informal agreement that does not legally bind the bank to provide the funds.
• D) A revolving line of credit with no fixed maturity is called evergreen credit.

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, which can enter into contracts, own assets, sue and be sued.

Piercing the Corporate Veil

A legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors.

Creditors

Individuals or institutions that extend credit or lend money to others with the expectation of being repaid, usually with interest.