Under ASC 842, in FY 2016, will any of the following financial ratios lead to violations of debt covenants based on current GAAP: debt-to-equity ratio, current ratio, return on assets, and interest coverage ratio? The financial ratios would not lead to the violation of debt covenants under the current GAAP.

Under ASC 842, in FY 2016, will any of the following financial ratios lead to violations of debt covenants based on current GAAP: debt-to-equity ratio, current ratio, return on assets, and interest coverage ratio? The financial ratios would not lead to the violation of debt covenants under the current GAAP.

5. a) What clauses should be added that would allow the covenants to be calculated as they are at current GAAP? The first clause that should be added to avoid violating the debt covenant is to adjust the CTC's bond contract to allow for an explicit exemption for the debt covenant defaults resulting from the GAAP accounting change. This adjustment clause would eliminate the increase in liabilities under the new clause, adversely affecting CTC's financial position. In addition, a new clause should be added to adjust the highinterest rate on the bond because the high rate will lead to an unfavorable interest coverage ratio, leading to a violation of the debt covenant.