Maurice Tutor

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About Maurice Tutor

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Teaching Since: May 2017
Last Sign in: 402 Weeks Ago, 4 Days Ago
Questions Answered: 66690
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Education

  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

Experience

  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 03 Aug 2017 My Price 11.00

contractual restrictions designed

Many long-term loans have contractual restrictions designed to protect the lender from deterioration of the borrower's liquidity or solvency in the future. These restrictions (typically called loan covenants) often take the form of financial-statement ratio values. For example, a lending agreement may state that the loan principal is immediately due and payable if the current ratio falls below 1.2. When borrowers are in danger of violating one or more of these loan covenants, pressure is put on management and the financial accountants to

avoid such violations.
Jim is a second year accountant at a large publicly-traded corporation. His boss approaches him and says,
''Jim, I know why we increased our warranty liability, but it puts

our current ratio in violation of a loan covenant with our bank loan. I know the bank will pass on it this time, but it's a big hassle to get the waiver. I just don't want to deal with it. I need you to reduce our estimate of warranty liability as far as possible.''

Required:
1. How would lowering the estimate of warranty liability affect the current ratio?
2. How should Jim respond to his boss?
3. Given that Jim's employer is a publicly-traded corporation, what safeguards should be at Jim's disposal?

Answers

Maurice Tutor
(5)
Status NEW Posted 03 Aug 2017 11:08 PM My Price 11.00

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