Disclosures $-$ GAAP Notes to the Financial Statements

Question $26(2$ points$)$

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A $10-$year loan agreement ending December $31,2033,$ which the company entered into three $(3)$ years ago, provides that dividend payments may not exceed net income earned after taxes subsequent to the date of the agreement. The balance of retained earnings at the date of the loan agreement was $$420,000.$ From that date through December $31,2026,$ net income after taxes has totaled $$570,000$ and cash dividends have totaled $$320,000.$ What is the GAAP requirement related to disclosing this matter as of December $31,2026?($Check all that apply.$)$

Question $26$ options:

$1)$

The Company must report the terms of this agreement in its Notes to the financial statements.

$2)$

Companies are not required under GAAP to disclose restrictions on dividends, however, they usually do so in the Management Discussion and Analysis section of the $10$K$.$

$3)$

Since the Company's profits have exceeded its dividends, it has no obligation to report the agreement in its Notes to the financial statements.

$4)$

Since dividends may not exceed net income, this matter affects the potential future cash flow to shareholders.$$