In General, with Regard to Dividend Payments, the Contractual Constraints

question 37

Multiple Choice

In general, with regard to dividend payments, the contractual constraints imposed by loan agreements can include all of the following EXCEPT

• A) prohibit the payment of cash dividends until a certain level of earnings has been achieved.
• B) limit the percentage of earnings that can be paid out in dividends.
• C) limit the actual dollar amount of dividends that can be paid out.
• D) require the payment of a common stock dividend.

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Definitions:

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that may not be collectible, serving as a contra asset account.

Aging Method

An accounting technique used to estimate the amount of bad debt expense by classifying accounts receivable according to their age.

Credit Sales

Transactions where the buyer is allowed to pay for goods or services at a later date, rather than at the time of purchase.

Interest Rate

A cost, depicted as a percent of the original amount, that a lender demands from a borrower for the right to use resources.