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Question - Scenario - You have recorded a revolving line of credit on your company'sfinancial statements due within the next ten (10) months as a long-term liability. The board of directors of the company hasasked you to explain why you have done so. The company has been in default with its loan covenants, but prior to the issuanceof the financial statements, the bank granted a waiver.
With reference to the above scenario, answer the following questions.
1. What is a line of credit?
2. What promulgated accounting literature would your use to support your rationale described in your scenario?
3. What criteria should be met prior to reflecting this loan as a long-term liability?
4. Why would recording the loan as a long-term liability from a business standpoint of view make sense apart from compliance with promulgated standards?
5. What footnote disclosure would be necessary for the line of credit?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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