The following covenants are extracted from the indenture of a bond issue outstanding from McMullen Corp. The indenture provides that failure to comply with its terms in any respect automatically advances the due date of the loan to the date of noncompliance (the regular date is 20 years hence).

Required List any audit steps or reporting requirements that you feel should be taken or recognized in connection with each one of the following with respect to your audit of McMullen Corp.

a. The debtor company shall endeavour to maintain a working capital ratio of 2:1 at all times, and, in any fiscal year following a failure to maintain said ratio, the company shall restrict compensation of officers to a total of $250,000. Officers for this purpose shall include a chair of the board of directors, a president, all vice presidents, a secretary, and a treasurer.

b. The debtor company shall keep all property that is security for this debt insured against loss by fire to the extent of 100 percent of its actual value. Policies of insurance comprising this protection shall be filed with the trustee.

c. The debtor company shall pay all taxes legally assessed against the property that is security for this debt within the time provided by law for payment without penalty, and shall deposit receipted tax bills or equally acceptable evidence of payment of same with the trustee.

d. A sinking fund shall be deposited with the trustee by semi-annual payments of $300,000, from which the trustee shall, in his or her discretion, purchase bonds of this issue.

(AICPA adapted)