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Shortly After Entering into a Contract with Prentice Co

question 33

Essay

Shortly after entering into a contract with Prentice Co.to provide consultation on integrating its office systems,Antonio discovers he is the victim of a neurological disease that will kill him very rapidly.Because of his situation and the excellent service he has provided the company in the past,Prentice's president decides to write off the whole of the $30,000 amount the company had advanced him which was to cover the investigatory and recommendation stages of his work for them,even though failure to perform was cause for rescission of the contract.
A)Prentice's action is either a waiver or a release.Which is it and what is the difference between them?
B)What danger does Antonio face if the president now leaves Prentice Co.and the new president reviews the matter?
C)What should be done to protect Antonio from that problem,at the time the promise is made?

Definitions:

Carrying Amount

The book value of assets and liabilities on a company's balance sheet, calculated as the original cost minus any depreciation, amortization, or impairment costs.

Interest-Bearing Note

A debt instrument that specifies the amount borrowed, interest rate, and maturity date, obligating the borrower to pay interest.

Bond

A form of interest-bearing note used by corporations to borrow on a long-term basis.

Times Interest Earned Ratio

This ratio measures a company's ability to meet its debt obligations based on its current income, calculated as earnings before interest and taxes divided by interest expense.