Which of the following statements is consistent with the positive accounting theory paradigm?
A) Managers avoid future sacrifice of economic benefits debt covenants when the company is close to violation of debt covenants.
B) Managers avoid constructive obligations in the presence of accounting based debt covenants even though there is no realistic alternative to making future sacrifice of economic benefits.
C) Managers choose accounting methods that will decrease income to reduce the probability of debt covenant violation.
D) Managers avoid income increasing accounting methods to reduce the probability of debt covenant violation.

Question

Which of the following statements is ­consistent with the positive accounting theory paradigm?
A) Managers avoid future sacrifice of economic benefits debt covenants when the company is close to violation of debt covenants.
B) Managers avoid constructive obligations in the presence of accounting based debt covenants even though there is no realistic alternative to making future sacrifice of economic benefits.
C) Managers choose accounting methods that will decrease income to reduce the probability of debt covenant violation.
D) Managers avoid income increasing accounting methods to reduce the probability of debt covenant violation.

Quizplus · Accepted Answer

Positive accounting theory suggests that managers will make accounting choices to avoid the negative consequences of violating debt covenants, such as choosing accounting methods that avoid or delay the recognition of expenses or losses that could bring the company closer to covenant violation.

Which of the Following Statements Is ­Consistent with the Positive

Which of the Following Statements Is Consistent with the Positive