Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 51

Loan covenants require that E-Gadget Corporation (EGC) generate $200,000 cash from operating activities each year. Without intervening during the last month of the current year, EGC will generate only $180,000 cash from operations. What are the pros and cons of each of the following possible interventions: (a) pressuring customers to pay overdue accounts, (b) delaying payment of amounts owing to suppliers, and (c) purchasing additional equipment to increase depreciation