If the Management of an Entity Is Close to Breaching

Multiple Choice

If the management of an entity is close to breaching a debt covenant that requires maintaining a certain current ratio, management may have an incentive to ________.

A) either overstate current assets or understate current liabilities
B) understate either current assets or current liabilities
C) overstate either current assets or current liabilities
D) either understate current assets or overstate current liabilities