A Fort Myers credit agreement limits line usage to 75% of a $600,000 line. Current borrowing is $468,000. What status should management report?
Correct Answer
C) covenant exception
Line usage is compared with the covenant percentage to decide whether the account is within the reporting limit.
Why This Is the Correct Answer
Line usage is compared with the covenant percentage to decide whether the account is within the reporting limit.
Why the Other Options Are Wrong
Option A: bid bond released
bid bond released puts the item in the wrong financial bucket, timing, base, or comparison for bank covenant reporting.
Option B: claim notice archived
claim notice archived puts the item in the wrong financial bucket, timing, base, or comparison for bank covenant reporting.
Option D: payroll accrual posted
payroll accrual posted puts the item in the wrong financial bucket, timing, base, or comparison for bank covenant reporting.
Memory Technique
Controller Prepares money test: bucket before math for bank covenant reporting.
Reference Hint
Open-book path: tab Contractor's Manual, 2025 to Business Administration, Bank Reporting and Credit Covenants; verify the record, approval, or control duty before selecting the answer.
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