Problem:
Suppose XYZ company was closing its books for the quarter in two weeks. The credit agreement with the bank requires a ratio of (1) income available for fixed charges over (2) fixed charges of 1.75 to 1.00. XYZ is in danger of missing the ratio, violating the covenant.
Required:
Question: Which of the following is the best method of meeting the covenant?
- Leave the books open several days into the next quarter.
- Report this quarter's expenses in next quarter.
- Delay repairs and maintenance until next quarter.
- Change accounting estimates
Note: Provide support for your rationale.