A Lender May Limit the Ability of a Company to Pay

Multiple Choice

A lender may limit the ability of a company to pay future dividends in order to ensure that loan proceeds are used for purposes that will increase the company's profits and ability to repay the loans.Which of the following statements is true in this regard?

A) The circumstance described in the statement is an example of a loan covenant.
B) The lender may require instant repayment of debt if the loan proceeds are instead used to finance the payment of dividends.
C) Such restrictions must be reported in the notes to the financial statements.
D) All of the answers are acceptable.