Which of the Following Is an Example of an Appropriate

question 16

Multiple Choice

Which of the following is an example of an appropriate loan covenant?

• A)The firm must not increase its debt ratio by more than 3 percent.
• B)The firm must keep its current ratio above 2.2.
• C)The firm must purchase an insurance policy on a key employee.
• D)All of these are examples of appropriate loan covenants.

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Definitions:

Limited Liability Company

An organizational form blending the direct tax system of a sole proprietorship or partnership with the reduced liability features of a corporation.

Cost Concept

An accounting principle that states all assets and services purchased by a company should be recorded at their cost price.

Market Value

The present rate at which a service or asset may be purchased or sold in the market.

Accounting Records

Documents and books that keep systematic financial data and transactions of a person, company, or entity.