1.

A typical rate formula for a public utility includes:

Multiple Choice

• operating costs, bad debt provisions, and depreciation.

• advertising, depreciation, and taxes.

• operating costs, depreciation, and taxes.

• revenue, operating costs, and taxes.

2.

Which of the following does not properly represent the relation of tax and GAAP accounting?

Multiple Choice

• GAAP and tax depreciation expense will rarely be equal.

• The accounting methods used for tax are permitted to differ from GAAP rules.

• Companies using FIFO for financial statements prefer FIFO for tax purposes because FIFO results in a lower taxable income.

• If LIFO is used for inventory valuation for taxes, LIFO must also be used for GAAP financial reporting.

3.

Which one of the following is not a broad function served by debt covenants?

Multiple Choice

• Debt covenants offer the lender some protection against credit-damaging events affecting the borrower.

• Debt covenants usually preclude the borrower from being a merger target.

• Debt covenants are designed to preserve the borrowers repayment capacity.

• Debt covenants serve as both signals and triggers, thereby assuring a steady flow of information from borrower to lender.