Asked by Jessica Sheppard on Jun 15, 2024
Verified
The failure of a company to pay other debts,such as payables or other loans,when due is called
A) routine default.
B) non-default.
C) cross default.
D) compliance default.
Cross Default
A provision in a loan agreement that triggers a default under the agreement if the borrower defaults on another debt obligation.
Compliance Default
Compliance default occurs when a party fails to act in accordance with set guidelines, rules, or laws, potentially leading to legal consequences.
- Comprehend the role of GAAP in the context of financial agreements and examine how choices in accounting affect the terms of debt contracts.
Verified Answer
KM
Katherine McKeownJun 21, 2024
Final Answer :
C
Explanation :
Cross default refers to a situation where a company's failure to pay one debt results in the default of other debts as well. This happens when the company has multiple loans or credit facilities with a cross-default clause, meaning that the default in one loan triggers a default in all other loans. This can have serious consequences for the company's financial health and credit rating. A routine default simply means that a company failed to pay a debt on time, while a non-default means the company paid its debts as agreed upon. A compliance default refers to a breach of a specific loan covenant or requirement, such as a financial ratio or minimum liquidity level.
Learning Objectives
- Comprehend the role of GAAP in the context of financial agreements and examine how choices in accounting affect the terms of debt contracts.
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