Review Ross Lipstick Company long-term debt agreements

Assignment Help Finance Basics
Reference no: EM131820624

Question: Ross's Lipstick Company's long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess of the balance of retained earnings. Also, long-term debt may not exceed stockholders' equity, and the current ratio may not fall below 1.50. If Ross fails to meet any of these requirements, the company's lenders have the authority to take over management of the company. Changes in consumer demand have made it hard for Ross to attract customers. Current liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Ross's management is scrambling to improve the current ratio. The controller points out that an investment can be classified as either long-term or short-term, depending on management's intention. By deciding to convert an investment to cash within one year, Ross can classify the investment as short-term-a current asset. On the controller's recommendation, Ross's board of directors votes to reclassify long-term investments as short-term.

Requirements: 1. What effect will reclassifying the investments have on the current ratio? Is Ross's true financial position stronger as a result of reclassifying the investments?

2. Shortly after the financial statements are released, sales improve; so, too, does the current ratio. As a result, Ross's management decides not to sell the investments it had reclassified as short-term. Accordingly, the company reclassifies the investments as long-term. Has management behaved unethically? Give the reasoning underlying your answer.

Reference no: EM131820624

Questions Cloud

What are rhoda penalties for failure to file and to pay : Rhoda, a calendar year taxpayer, files her 2010 return on November 4, 2012. What are Rhoda's penalties for failure to file and to pay
Evaluate the balance sheet and statement of cash flows : Evaluate the balance sheet and statement of cash flows. What do they tell you about the company
Csi effect has juries wanting more evidence : The article "CSI Effect Has Juries Wanting More Evidence" (USA Today, August 5, 2004) examines how the popularity of crime-scene investigation
The researchers state that strength is caused by increasing : The researchers state that strength is caused by increasing age. Do you agree with this statement? Why or why not. Support your answer.
Review Ross Lipstick Company long-term debt agreements : Ross's Lipstick Company's long-term debt agreements make certain demands on the business. For example, Ross may not purchase treasury stock in excess.
Describes what a muscle spindle is : HSE101 Principles of Exercise & Sport Science - State clearly whether you think there is an effect of muscle vibration on flexibility and jumping performance
Confidence interval for the proportion of us : a. Construct a 95% confidence interval for the proportion of U.S. adults for whom math was the favorite subject in school.
Compute the failure to pay and failure to file penalties : Compute the failure to pay and failure to file penalties for John, who filed his 2010 income tax return on October 20, 2011
Why do you believe that job responded in way that job did : Why do you believe that Job responded in the way that he did? How does this reading help us in our approach to Personal Finance?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd