Pete Ltd's Statement of Financial Position Is Shown Below

question 8

Multiple Choice

Pete Ltd's statement of financial position is shown below.

The above balances include a receivable from Patricia Ltd for an amount of $100,000 and a payable to Patricia Ltd for $50,000. A debt contract with ABC Bank signed by Pete Ltd requires a debt equity ratio of no more than 50%.
Based on the above information, which course of action will be consistent with positive accounting theory?

• A) Pete Ltd will re-negotiate the debt contract with ABC Bank to increase the required debt equity ratio.
• B) Pete Ltd will offset the receivable from Patricia Ltd with the payable to Patricia Ltd.
• C) Pete Ltd will offset the payable to Patricia Ltd with the receivable from Patricia Ltd.
• D) Pete Ltd need not do anything as the entity is not in violation of a debt covenant.
• E) All of the given answers.

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Definitions:

Exchange Rate

The price measured in one country’s currency of purchasing one unit of another country’s currency

Employment

The condition of having paid work or the number of people within an economy who are currently employed.

Net Taxes

Refers to the total amount of taxes paid by businesses and individuals to the government, minus any refunds, credits, or benefits received, representing the actual tax burden.

Disposable Income

The amount of money a household or individual has available to spend or save after taxes have been deducted.