Leaf Co. has a $90,000, 9%, 10-year note issued July 31 of the current year. The debt agreement requires that Leaf maintain a total liabilities-to-equity ratio of 1.0 or less, or else the lender is able to call the debt immediately. At the end of the current year, Leaf's year-end financial statements indicate that it has a total liabilities-to-equity ratio of 1.05. a. Show how the debt is classified on the balance sheet at the current year-end. b. Assume that Leaf obtained a 6-month waiver of the debt covenant beginning this year-end from the lender. The waiver letter was dated on February 1 of the following year (before financial statements were issued). Describe how the debt is classified on the balance sheet at the current year-end. c. How would the answer to part b change (if at all), if a 15-month waiver was obtained? a. Balance Sheet, December 31 b. Balance Sheet, December 31 ¶ ( c. Balance Sheet, December 31 ( $ $ ◆ $ 0 0 0

Leaf Co. has a $90,000, 9%, 10-year note issued July 31 of the current year. The debt agreement requires that Leaf maintain a total liabilities-to-equity ratio of 1.0 or less, or else the lender is able to call the debt immediately. At the end of the current year, Leaf's year-end financial statements indicate that it has a total liabilities-to-equity ratio of 1.05. a. Show how the debt is classified on the balance sheet at the current year-end. b. Assume that Leaf obtained a 6-month waiver of the debt covenant beginning this year-end from the lender. The waiver letter was dated on February 1 of the following year (before financial statements were issued). Describe how the debt is classified on the balance sheet at the current year-end. c. How would the answer to part b change (if at all), if a 15-month waiver was obtained? a. Balance Sheet, December 31 b. Balance Sheet, December 31 ¶ ( c. Balance Sheet, December 31 ( $ $ ◆ $ 0 0 0

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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