The following covenants are extracted from the indenture of abond issue. The indenture provides that failure to comply with its terms in any respectautomatically makes the loan immediately due (the regular date is 20 years hence). Listany audit steps or reporting requirements you think should be taken or recognized inconnection with each one of the following:a. The debtor company shall endeavor to maintain a working capital ratio of 2 to 1at all times, and in any fiscal year following a failure to maintain said ratio, thecompany shall restrict compensation of officers to $100,000 per individual. Officersfor this purpose shall include chairman of the board of directors, president, all vicepresidents, secretary, and treasurer.b. The debtor company shall keep all property that is security for this debt insuredagainst loss by fire to the extent of 100% of its actual value. Policies of insurancecomprising this protection shall be filed with the trustee.c. The debtor company shall pay all taxes legally assessed against property that issecurity for this debt within the time provided by law for payment without penaltyand shall deposit receipted tax bills or equally acceptable evidence of payment ofsame with the trustee.d. A sinking fund shall be deposited with the trustee by semiannual payments of$300,000, from which the trustee shall, in his discretion, purchase bonds of thisissue.*
The following covenants are extracted from the indenture of a
bond issue. The indenture provides that failure to comply with its terms in any respect
automatically makes the loan immediately due (the regular date is 20 years hence). List
any audit steps or reporting requirements you think should be taken or recognized in
connection with each one of the following:
a. The debtor company shall endeavor to maintain a
at all times, and in any fiscal year following a failure to maintain said ratio, the
company shall restrict compensation of officers to $100,000 per individual. Officers
for this purpose shall include chairman of the board of directors, president, all vice
presidents, secretary, and treasurer.
b. The debtor company shall keep all property that is security for this debt insured
against loss by fire to the extent of 100% of its actual value. Policies of insurance
comprising this protection shall be filed with the trustee.
c. The debtor company shall pay all taxes legally assessed against property that is
security for this debt within the time provided by law for payment without penalty
and shall deposit receipted tax bills or equally acceptable evidence of payment of
same with the trustee.
d. A sinking fund shall be deposited with the trustee by semiannual payments of
$300,000, from which the trustee shall, in his discretion, purchase bonds of this
issue.*
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