a) Under ASC 840, in FY 2016, will any of the following financial ratios lead to violations of debt covenants based on prior GAAP: debt-to-equity ratio, current ratio, return on assets, and interest coverage ratio?

Debt to equity ratio = Total liabilities / total shareholders’ equity = $8976/ $12,783 = 0.70, which is good because it is below 2.0.

Current ratio = Current assets / Current liabilities = $5,934/ $2,076 = 2.858, which is good according to debt covenants because it is greater than 1.0.

Return on assets = Net income / Total assets = $2096/ $12,783 = 0.164 = 16.14%, which is good because it is above 13%, as required in the debt covenant.

Interest Coverage ratio = Income before income taxes / Interest expense = $3224/ $414 = 7.787, which is a good value because it is above 2.0, as recommended in the debt covenant