Please read each case carefully, and analyze the facts. Then, describe the problem in writing, and propose a solution involving the various concepts and procedures learned in class.

In the audit of Emerson College, the auditors found the clients working capital to be far below the minimum stipulated in the indenture of long-term mortgage bonds payable. In addition, the College had allowed the required insurance coverage of pledged assets to lapse. These violations were sufficient to cause the bond issue to become payable on demand. If you were the auditor of Emerson College, what are the problems associated with a violation of a debt covenant? What are the potential ways around this problem, if any?