Your client, Harper Company, has a contractual commitment as apart of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below thatlevel on the balance sheet date, the entire bond becomes payable immediately. In thecurrent year, the client’s financial statements show that the ratio has dropped from 2.6 to2.05 over the past year. How should this situation affect your audit plan?
Your client, Harper Company, has a contractual commitment as apart of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below thatlevel on the balance sheet date, the entire bond becomes payable immediately. In thecurrent year, the client’s financial statements show that the ratio has dropped from 2.6 to2.05 over the past year. How should this situation affect your audit plan?
Foundations of Business - Standalone book (MindTap Course List)
4th Edition
ISBN:9781285193946
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Chapter15: Using Management And Accounting Information
Section: Chapter Questions
Problem 5DQ
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Question
Your client, Harper Company, has a contractual commitment as a
part of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below that
level on the balance sheet date, the entire bond becomes payable immediately. In the
current year, the client’s financial statements show that the ratio has dropped from 2.6 to
2.05 over the past year. How should this situation affect your audit plan?
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