Carlton,Inc

question 60

Multiple Choice

Carlton,Inc.presented the following information in a note to its financial statements for the year ending December 31,2012: The company has a loan agreement with Beachside Bank that states:
1) The current ratio should remain at least 2.0 to 1 at all times.
2) The debt-to-equity ratio should not exceed .7 to 1 at any time.
3) The times-interest-earned should be 5.0 or better.
4) The inventory,turnover should be 4.0 or better.
The ratios at year-end are: current ratio,2.3 to 1;debt-to-equity ratio,.6 to 1;times-interest-earned,7.1;and inventory-turnover,3.7.Which of the following statements is true?

• A)Carlton was in default because of the inventory turnover.
• B)Carlton was in default because of the current ratio.
• C)Carlton was in default because of the debt-to-equity ratio.
• D)Carlton was in default because of the times-interest-earned.

---

Definitions:

Natural Gas Extraction

The process of exploring, drilling, and producing natural gas from underground reservoirs.

Imperfectly Elastic

Describes a demand curve that does react to price changes, but not in a perfect one-to-one relationship, indicating some sensitivity to price changes but not to an infinite degree.

Substitute

A good or service that can be used in place of another to satisfy similar needs or desires.

Economic Rent

The excess payment made to a factor of production over what is necessary to keep it in its current use, reflecting payment beyond its opportunity cost.