The Following Information Was Included in a Note to the Current

Multiple Choice

The following information was included in a note to the current year financial statements of Romeo Productions: The company has a loan agreement with First National Bank that states:
1) The current ratio must be 2.0 or higher at all times.
2) The debt-to-equity ratio must not exceed 0.7 at any time.
3) The times interest earned ratio must be 5.0 or higher.
4) The inventory turnover ratio must be 4.0 or higher.
The company's ratios are: current ratio, 2.3; debt-to-equity ratio, 0.6; times interest earned ratio, 7.1; and inventory turnover ratio, 3.7. Based on this information, the company was in default of its loan agreement because of the

A) current ratio.
B) debt-to-equity ratio.
C) times interest earned ratio.
D) inventory turnover ratio.