| Course | ACC 318 Intermediate Accounting II |
|---|---|
| Module | Module 6 |
| Paper type | undergraduate discussion post on debt covenants and liability classification |
| Length | About 370 words, 3 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 318 Module 6
Module Six Discussion
Eleven Days of Ice and a $7.2 Million Question
In mid-December an ice storm closed nine of the trampoline park chain's eighteen parks for eleven days, during the two weeks that usually bring in a sixth of its annual revenue. When the controller ran the year-end numbers, the bank's fixed-charge coverage ratio came out at 1.18. The term loan requires at least 1.25.
A missed covenant is not just an awkward conversation with the bank; it can move debt on the balance sheet. The loan agreement says a breach lets the bank demand immediate repayment of the remaining $7.2 million. GAAP looks at the balance sheet date: if the lender can demand payment then, the debt is a current liability, however long its original term (Kieso et al., 2019). There are two ways out. The bank can give up its right to demand payment for a period that runs past the next twelve months, or the loan can include a cure period in which the company will probably fix the shortfall.
Here the bank granted a waiver in January, before the statements were issued, covering the December breach and all covenant tests through the following March, fourteen months after year end. Because the waiver extends beyond twelve months, the debt stays noncurrent, though the notes must describe the breach and the waiver. Had the waiver run only to the next quarterly test in March, the full $7.2 million would have been current.
The stakes show in the current ratio. With the debt noncurrent it is about 2.2. Reclassifying $7.2 million would drop it to roughly 1.4, which could breach the separate working capital covenant in the equipment lease and make suppliers nervous. Dichev and Skinner (2002) found that covenant thresholds are often set tightly and violations are common, which is why waivers are routine. Chava and Roberts (2008) showed, though, that violations still shift bargaining power to lenders and reduce borrowers' investment afterward. This waiver came with a higher rate and a pause on new park openings.
For classmates: is it right that a fourteen-month waiver keeps the debt long term while a twelve-month waiver would not, or does the bright line hide how close the company came?
References
Chava, S., & Roberts, M. R. (2008). How does financing impact investment? The role of debt covenants. The Journal of Finance, 63(5), 2085-2121. https://doi.org/10.1111/j.1540-6261.2008.01391.x
Dichev, I. D., & Skinner, D. J. (2002). Large-sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091-1123. https://doi.org/10.1111/1475-679X.00083
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 318 Module 6 instructions ask for
The Module Six discussion in ACC 318 often turns to liabilities: how they are classified as current or noncurrent, what happens when a debt covenant is violated, and what must be disclosed. Most sections want several paragraphs drawing on the text and at least one further source, followed by replies. Strong posts work through a specific situation, such as a covenant breach, a refinancing or a callable obligation, and apply the rule step by step: is the debt callable at the balance sheet date, has the lender waived its rights, and for how long. Then show what the classification does to ratios a lender or investor watches. Close by asking classmates to judge the rule or apply it to a variation.
How this ACC 318 Module 6 discussion example is built
In the post, an ice storm closes nine parks for eleven days in December, and the chain's fixed-charge coverage ratio falls to 1.18 against a required 1.25. That breach gives the bank the right to call its $7.2 million term loan. The post explains that debt callable at the balance sheet date is current unless the lender waives the right for more than a year, or it is probable the breach will be cured within a grace period. The bank grants a waiver through the following March, which is only fourteen months, and the post explains why that is enough. It shows the current ratio falling from 2.2 to 1.4 if the debt were current, cites research on covenant tightness and asks classmates whether the rule is too strict.
Where the ACC 318 Module 6 rubric puts the points
Graders of the ACC 318 liability classification discussion usually look for correct application of the current versus noncurrent rules, accurate treatment of covenant violations and waivers, a specific example with the effect on ratios, and use of sources. Top posts state the rule precisely, including the one-year test for waivers and grace periods, and explain why classification matters to users. They also acknowledge the lender's perspective. Posts that describe covenants in general, or that assume debt stays long term because it was originally long term, score lower. Replies that explore a variation, such as a waiver that is too short, show deeper understanding and earn participation credit.
ACC 318 Module 6 help: the mistakes that cost points
A frequent weakness in this discussion is stating that long-term debt is always noncurrent until its maturity date, which ignores callable obligations. Another is assuming any waiver solves the problem, when a waiver must cover more than one year from the balance sheet date. Some posts also forget disclosure: even with a valid waiver, the notes should describe the breach. If your prompt instead involves short-term debt expected to be refinanced, or a callable bond, the same balance sheet date test applies and we can walk through it with your facts. Showing the ratio before and after classification makes the post concrete and is usually what graders remember.
Get ACC 318 Module 6 written to your instructions
Send the ACC 318 Module 6 prompt and the facts of the liability or covenant it describes. The post will apply the classification rules, show the effect on the ratios users watch and close with a question for classmates. Your first paper is on the house, normally within two days. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 318 Module 6 questions, answered
Where can I find a free ACC 318 Module 6 Discussion sample?
This page includes the full ACC 318 Module 6 post on a covenant breach, a lender's waiver and whether long-term debt becomes current.
What happens to long-term debt when a covenant is violated?
If the violation makes the debt callable by the lender at the balance sheet date, it is classified as current unless the lender waives its right to demand repayment for more than one year or the violation will probably be cured within a grace period.
What is a debt covenant?
A condition in a loan agreement, such as a minimum ratio or a limit on dividends, that the borrower must meet. Breaking it gives the lender rights, often including the right to demand repayment.
How does classifying debt as current affect ratios?
It increases current liabilities, lowering the current ratio and working capital, which can trigger further concerns from lenders, suppliers and investors.
Must a covenant violation be disclosed if a waiver is obtained?
Generally yes. The notes should describe the violation and the waiver so users understand the risk even though the debt remains noncurrent.