Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2010 income statement data for the company is as follows:
What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before change in accounting principle?
a. $55,000
b. $60,000
c. $65,700
d. $42,160

Question

Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2010 income statement data for the company is as follows:
  What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before change in accounting principle? 
a. $55,000
b. $60,000
c. $65,700
d. $42,160

Quizplus · Accepted Answer

The Answer of Sunrise Designs maintains a credit line with Ohio River Bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company's dividends in any one year. The 2010 income statement data for the company is as follows:
  What is the maximum amount of dividends Sunrise can pay if the covenant is expressed as 20 percent of income before change in accounting principle? 
a. $55,000
b. $60,000
c. $65,700
d. $42,160

Sunrise Designs Maintains a Credit Line with Ohio River Bank