APPLY YOUR KNOWLEDGE Serial Case (Learning Objective 5: Calculate modified debt ratios for a company in the restau rant industry) Note: This case is part of The Cheesecake Factory serial case contained in every chapter in this L05 textbook. Near the end of 2016, The Cheesecake Factory entered into a new loan agreement with its creditors. This new four-year agreement provided loan commitments totaling up to $200 million. The commitments enable The Cheesecake Factory to borrow funds as needed at specified rates and terms. As of January 3, 2017, The Cheesecake Factory had not borrowed any funds associated with the commitment, so its long-term debt related to the new loan agreement was zero. As part of the loan agreement, The Cheesecake Factory agreed to maintain a maximum "Net Adjusted Lever the Net Adjusted Levera cific earnings items, before interest, taxes, an ber 29, 2015, The Chee DAR Ratio was 3.1. Suppose that The Cheeseca also that the interest rate in en de Factory does not make a djusted Leverage Ratio" of 4.0 and a minimum "EBITDAR Ratio" of 1.9. Roughly, Justed Leverage Ratio is a measure using specific debt balances divided by spe- carnings items, while the EBITDAR Ratio is a measure of specific earnings items 'St, taxes, and other items divided by interest and rental expenses. As of Decem- Cheesecake Factory's Net Adjusted Leverage Ratio was 2.4 and its EBIT- other loans outsu ns outstanding from this loan agre he Cheesecake Factory borrows $30 million on July 1, 2018. Assume rate in effect during 2018 is 1.5% for this loan and that The Cheese make any principal payments on the loan during 2018 and had no rom this loan agreement during the year. Assume further that the nthly interest payments due on the Iof the month for the month just est payments will begin on August 1, 2018. terms call for monthly into uded. Monthly interest pay Requirements 1. When the new loan agreement was made at the end of 2016, would The Cheesecake Factory have recorded the loan agreement in its general ledger? Would this new 1 agreement have impacted The Cheesecake Factory's balance sheet in 2016? Explai 2. What entry would The Cheesecake Factory make on July 1, 2018, to record its borro How would the new borrowing impact its assets, liabilities, and equity on that date? 3. How much interest expense related to the hypothetical borrowing would The Cheeseca Factory need to accrue at its fiscal 2018 year-end? (Assume that fiscal year end for 2018 is December 31, 2018.) How would the adjusting entry for interest expense impact The Cheesecake Factory's assets, liabilities, and equity? 4. What would be the total interest expense related to the hypothetical borrowing for 2018 5. Would the hypothetical borrowing in 2018 cause the Net Adjusted Leverage Ratio to increase, decrease, or stay the same? Explain. 6. Would the hypothetical borrowing in 2018 cause the EBITDAR Ratio to increase, decrease, or stay the same? Explain