A Banker Is Analyzing a Company That Operates in the Automotive

question 16

Multiple Choice

A banker is analyzing a company that operates in the automotive industry.Which of the following will likely be the banker's most important consideration when determining whether the company should receive a loan?

• A) The automotive industry faces political pressures regarding environmental regulation.
• B) Inflation has been consistently high for several years.
• C) The company has state-of-the-art automated equipment that enhances its operating efficiency.
• D) The company has a large amount of interest payments related to other outstanding loans.

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Definitions:

Closing Entries

Made at the end of the accounting period to transfer balances in temporary (income statement) accounts to Retained Earnings and to establish a zero balance in each of the temporary accounts for beginning the next accounting period.

Account Balances

The total amount of money in an account at a certain point in time, which can represent assets or liabilities depending on the account type.

Temporary Accounts

Accounts that are cleared out at the end of each accounting period, including revenues, expenses, and dividends accounts.

Permanent Accounts

Balance sheet accounts that carry their ending balances into the next accounting period, including assets, liabilities, and equity accounts.