Reference no: EM13178895
Details: Consider the following scenario:
Lucy Shafer wants to borrow $100,000 to expand her dog-breeding business. She is preparing a set of financial statements to take to the local bank with her loan application. She currently has an outstanding loan from her uncle for $50,000. Lucy's uncle is allowing her to borrow the money at a very low interest rate, and she does not have to make any principal payments for 5 years. Due to the favorable terms of her loan from her uncle, Lucy has decided that it is not significant enough to disclose on her financial statements. Instead, Lucy has classified the $50,000 as contributed capital (equity), and the interest payments are included in miscellaneous expenses on the company's income statement.
Respond to the following questions:
1. What are the effects of Lucy's classification on the financial statements?
2. Are there any ratios that might be of concern to the local bank that will be misstated by Lucy's actions?
3. Do you think Lucy's actions are unethical? Suppose Lucy's uncle agrees to be a partner in the company and Lucy can afford to buy his share by repaying the $50,000 with interest. Does that change your opinion? (2 to 3 paragraphs)
Objective:
• Assess financial accounting standards as they relate to presentation and disclosure in general purpose financial statements
• Evaluate, measure, value and present financial statements in conformity with GAAP relating to assets
• Improve research, oral and written communication skills within the financial management context
• Prioritize ethical and professional business conduct
|
At what point does her budget constraint kink
: Sam arrived on campus at the beginning of the academic year with $480 to spend on textbooks and CDs. The price of a textbook is uniformly $80 and the price of a CD is always $20. Her parents made a deal with her - after Sam spends $240 of her own ..
|
|
What is the probability of selecting a freshman on first
: Adams High School has 174 freshman, 181 sophomores, 214 juniors, and 249 seniors. If two students are selected at random without replacement, what is the probability of selecting a freshman on the first selection and a senior on the second selecti..
|
|
Compute the theoretical ph of one of the buffer
: Calculate the theoretical ph of one of your buffer at 0^0 C. Assume that room temperature is 22^0 C. If none of your buffer is listed on the table of changing pka with temperature, do this problem for TRIS at ph 8.0.
|
|
Find the cylinder density
: Using calipers, you find that a copper cylinder has length 8.625 and diameter 1.218 . An electronic pan balance shows that its mass is 89.84 . Find the cylinder's density.
|
|
What are the effects of lucys classification
: What are the effects of Lucy's classification on the financial statements and are there any ratios that might be of concern to the local bank that will be misstated by Lucy's actions?
|
|
How far does the car travel before coming
: a car is traveling along a straight level road at 45 mph (66 ft/s). when the driver is forced to apply the breakes to avoid accident. if the breakes supplied a constant deacceleration of 22 ft/s^2. how far does the car travel before coming to a co..
|
|
State internal standard to analyze a sample of titanium
: Cobalt was used as an internal standard to analyze a sample of titanium with atomic absorption spectroscopy. A mixture was prepared by combining a 4.00 mL Ti solution of unknown concentration with 3.00 mL of a 11.7 micrograms/mL solution of Co
|
|
How many adult tickets were sold
: A total of 393 tickets were sold for the school play. They were either adult tickets or student tickets. The number of student tickets sold was two times the number of adult tickets sold . How many adult tickets were sold?
|
|
What effect does a 8 percent increase in weight have on s
: If a person is 5 feet 4 inches tall, what effect does a 8% increase in weight have on S?
|