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The Mohawk Company borrows $5 million and is required to sign a debt covenant as a condition of taking out the loan. Which of the following is least likely to be required by the debt covenant?
Debt covenants typically place restrictions and requirements on working capital, not company operations.
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The Barry Company borrows on a note payable and is subject to a debt covenant that requires it to maintain a certain level of working capital. In July of Year 1, Barry's working capital requirements fall below the level acceptable by its lender. Which of the following actions could the lender most likely take in response to this?
If debt covenants are met, lenders have many options, but the most likely action they would take is to immediately call the entire balance due.
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First Lender Bank requires all corporate borrowers to maintain a current ratio of .9, or they will be considered out of compliance with the terms of their loan and the full outstanding balance could be called immediately. One of its borrowers, the Stone Company, has current assets of $150,000 and current liabilities of $200,000. Another borrower, the Concrete Company, has current assets of $75,000 and current liabilities of $90,000. Which of these companies is in compliance with First Lender's debt covenant?
The current ratio is calculated as current assets divided by current liabilities. For Stone Company, the current ratio is $150K/$200K = .75. For Concrete Company, the current ratio is $75K/$90K = .833. Neither company is in compliance because both have ratios below .9.
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A property dividend should be recorded in retained earnings at the property's:
A property dividend should be recorded in retained earnings at the property's market value at date of declaration.
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How would a stock dividend affect assets, equity, and retained earnings?
There is no net effect to equity as all transfers take place within equity. There is no effect to assets and only a decrease to retained earnings.
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Additional paid in capital would be utilized in recording gains from _______ transactions.
APIC is an account used to track the gains and decrease in gains from purchasing and reselling treasury stock.
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