Based on your revised debt covenant calculations, which, if any, debt covenant violations may occur when Topic 842 is implemented?
•To be proactive in helping avoid future covenant violations, you are recommending that the Newtons work with the bank to amend current agreements. What clauses should be added that would allow the covenants to be calculated as they are under prior GAAP? Identify options that you might suggest to the Newtons in their negotiations.
•Prior to the release of ASC Topic 842, one reason to lease rather than buy was to take advantage of “off-balance sheet financing.” Now that GAAP requires lessees to report assets and liabilities for all but very short-term leases, are there still advantages to long-term leases for the Newtons? Identify and discuss any advantages or disadvantages to continuing to lease. What recommendation will you make to the Newtons concerning continuing the long-term retail leases?