Q1:

a.Why could the new accounting standard trigger debt covenants?

b.Do you think the likelihood that this new accounting standard will be released would already be influencing the leases that companies would be entering?

c.Do you think that debt holders would prefer that more leases be recognized and disclosed on the BS, or be kept off balance sheet? LO 7.11, 7.12.

Q2:Which discusses the accounting practices used at the Australian company Harris Scarfe. It has been shown that Harris Scarfe reported results that inappropriately overstated its assets and understated its liabilities. Discuss whether this is consistentwith the opportunistic perspective provided by PAT and explain from a contracting perspective why an organization might want to overstate its assets and understate its liabilities. LO