Larry Purcell, an entry-level fixed income analyst at Knowhon & Smeades LLC, was discussing debt covenants with his supervisor, Andy Holzman. During the meeting Purcell made the following statements regarding bond covenants: Statement 1: If a firm violates any of its debt covenants, the company will immediately go into bankruptcy and the creditors of the firm will take over the liquidation of its assets. Statement 2: Debt covenants are important in evaluating a firm’ s credit risk and to better under-stand how the restrictions of the covenants can affect the firm’ s growth prospects and choice of accounting policies. Are statements 1 and 2 .s made by Purcell regarding bond covenants correct Statement 1 Statement 2 ①A. Correct Correct ②B. Incorrect Incorrect ③C. Incorrect Correct

单项选择题TY Corp. is a manufacturing firm with a reputation for very aggressive financial management. The company has a very high ROE of 28 percent and a spectacular return on assets of 42 percent. Which of the following is the most likely explanation of these ratios TY Corp. :（）

A. has just started using accelerated depreciation methods. 
B. leases most of its fixed assets. 
C. does not capitalize most of its product development costs.

单项选择题Selected information from Kentucky Corp. ’ s financial statements for the year ended December 31 was as follows (in $ millions) : Property, Plant & Equip. 10 Accumulated Depreciation (4) Deferred Tax Liability 0.6 The balances were all associated with a single asset. The asset was permanently impaired and has a present value of future cash flows of $ 4 million. After Kentucky writes down the asset, Kentucky’ s tax accounts will be affected as follows ( the tax rate is 40 percent) :（）

A. deferred tax liability will be eliminated and deferred tax assets will increase $ 0.2 million.  
B. deferred tax liability will be eliminated and tax assets will increase $1.4 million.  
C. income tax expense will decrease $ 0. 8 million.