A Company Has a Debt Covenant in Place That Limits

question 73

Multiple Choice

A company has a debt covenant in place that limits the amount it can borrow to 50% of its tangible assets.If the company's actual value for that ratio is approaching violation of this debt covenant,consistent with PAT,management would try to relax the constraint by:

• A) switching from straight-line depreciation to reducing balance method.
• B) increasing allowance for doubtful debts from 5% to 10%.
• C) increasing provision for warranty expenses.
• D) revaluing assets upwards.

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Definitions:

Enumerated Powers

Specific powers granted to the government or its branches through a constitution.

Legislation

Laws or acts passed by the governing body or legislature of a political entity.

Federal Government

The national government of a country, responsible for governing the nation as a whole.

Contract Clause

is a component of the U.S. Constitution that prevents states from enacting laws that retroactively impair contract rights.