If a Firm Has Agreed to a Debt Covenant That

question 31

Multiple Choice

If a firm has agreed to a debt covenant that specifies a maximum ratio of debt-to-total tangible assets,the probability of breaching the covenant is reduced if:

• A) additional borrowing is undertaken
• B) advertising is treated as an asset rather than as an expense
• C) depreciation is charged at a higher rate
• D) research and development costs are treated as an expense rather than as an asset

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Definitions:

Corporate Executives

Individuals who hold senior management positions within a company, responsible for making the major corporate decisions.

Whistleblower

An individual who exposes any kind of information or activity that is deemed illegal, unethical, or not correct within an organization.

Fraudulent Accounting

A practice involving intentional manipulation of financial statements to present a false picture of a company's financial health.

Ethics

Ethics is the branch of philosophy dealing with moral principles that govern a person's behavior or the conducting of an activity.