010 Debt Covenant Compliance

Question 1

What is the classification of liability subject to a subjective acceleration clause?

Answer 1

Current if it is possible the debt will be called; noncurrent if a remote chance exists of calling the debts.

Question 2

What is the classification of a liability callable on demand if debt covenant is violated and it is probable that the debtor will cure violation?

Answer 2

Noncurrent Liability.

Question 3

What is the classification of liabilities that are due on demand?

Answer 3

Current Liability.

Question 4

Give an example of a response by a creditor if the debt covenant is violated by the debtor.

Answer 4

Require the debtor to pay the debt or refinance the debt.

Question 5

Define debt covenant compliance.

Answer 5

Steps taken by debtor to meet the restriction and reporting such compliance.

Question 6

Define covenant-lite loan.

Answer 6

Loan with less stringent restrictions.

Question 7

List some examples of specific attributes in a covenant.

Answer 7

Minimum Current Ratio, Maximum Debt to Equity Ratio.

Question 8

Define debt covenant.

Answer 8

Restriction on debtor and possible responses by creditor.