Concept explainers
1.
Ethical Issue
Case Summary: Company G has borrowed $100,000 from a bank for expansion. The bank has put a condition that Company G should maintain a
To Journalize: The revenue transaction, and indicate how this will affect the current ratio.
2.
To Discuss: If it is ethical to record the revenue transaction in December, and identify the accounting principle being violated by this.
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Chapter 4 Solutions
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
- You are the Senior Credit Officer at your bank. Miss James, your Junior Credit Officer, has presented the following projected data for 2019 supplied by The Mosely Corporation. She has asked for assistance in completing the statement of financial position. The Mosely Corporation has applied for a loan to start a project that you will eventually make the credit decision on. Mosely's actual sales for 2018 were $2,400,000. your The bank's lending policy requires that a borrower's financial position must show equity of at least 20% in order to attract the bank's funding. (a) Use the data to complete the statement of financial position for 2019arrow_forwardJane requested a loan from a bank amounting to P405,630 to contin her small business. But she only received 83.84% of the loan as the bank collected the interest at the time money is requested. If the agreement will mature after 12 years and 4 months: Determine the 1.Simple interest, 2.simple discount rate, 3.total interest accumulated at the end of the year.arrow_forwardSeveral years ago, your brother opened Niagara Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an assistant. He is now considering adding more employees, purchasing addi- tional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (shown below) prepared from accounts maintained by a part-time bookkeeper. Indicate the accounts that might need to be adjusted before an accurate set of finan- cial statements can be prepared. c. Why did the loan officer ask your brother whether he used the accrual basis of accounting for revenues and expenses? Why would it have been important to use this method?arrow_forward
- You are the owner of four Taco Bell restaurant locations. You have a business loan with Citizens Bank taken out 60 days ago that is due in 90 days. The amount of the loan is $70,000, and the rate is 9.5% using ordinary interest. You currently have some excess cash: $45,000. Due to situations beyond your control, you, as the owner, must make an immediate business decision now to pursue only one of these two choices:1) sending all of the $45,000 to Citizens Bank as a partial payment on your loan, or2) using the $45,000 to purchase serving supplies such as food containers, cups, and plastic dinnerware for your inventory. This is the last day to take advantage of the opportunity to save some money due to a special discount price that is "10% off" the normal cost of $45,000 for these items. Consider these calculations: (A) How much interest (in $) will you save on this loan if you make the partial payment and don't purchase the additional serving supplies? (Round your answer to two…arrow_forwardJane requested a loan from a bank amounting to P405,630 to continue her small business. But she only received 83.84% of the loan as the bank collected the interest at the time money is requested. If the agreement will mature after 12 years and 4 months: Determine the Simple interest, simple discount rate, total interest accumulated at the end of the year.arrow_forwardMadeline is the sole proprietor of Maddie's Fine Art and wants to know whether she will have enough funds in her bank account to pay her bills over the next three months. She has $1,000 in her bank account after recently selling a painting, owes $500 to a vendor for paint and canvas, and expects an additional $500 in invoices in the next three months for other supplies. As her accountant, the best feedback you can give Madeline is: Assuming no additional sales over the next three months, Maddie's Fine Art has a current ratio of 1.0 and therefore has the necessary liquidity to pay its vendors. Madeline will need to sell at least one more painting for $500 to cover the invoices due within the next three months as Maddie's Fine art has a current ratio of 0.5. Madeline should consult with a bankruptcy attorney because Maddie's Fine Art has a current ratio of 0.75 and may not be able to pay any or all of its invoices within the next three months. O In addition to paying her current…arrow_forward
- Jane requested a loan from a bank amounting to P186,980 to continue her small business. But she only received 85.75% of the loan as the bank collected the interest at the time money is requested. If the agreement will mature after 6 years and 9 months, determine the following: 1. Simple interest rate, %. 2. Simple discount rate, %. 3. Total interest accumulated at the end of 4 years.arrow_forward10) Furniture Co. owed $880.00 for merchandise plus $20.00 for insurance. The bill was due on May 6 and the owner found he was unable to pay it. To keep a good credit rating, he decided to borrow the necessary amount from a bank that charged 9% discount. The maturity date for the loan was July 5. a) How much must he repay the bank? b) What was the cost of borrowing?arrow_forwardYou are the owner of four Taco Bell restaurant locations. You have a business loan with Citizens Bank taken out 60 days ago that is due in 90 days. The amount of the loan is $50,000, and the rate is 9.5% using ordinary interest. You currently have some excess cash: $35,000. Due to situations beyond your control, you, as the owner, must make an immediate business decision now to pursue only one of these two choices: 1) sending all of the $35,000 to Citizens Bank as a partial payment on your loan, or 2) using the $35,000 to purchase serving supplies such as food containers, cups, and plastic dinnerware for your inventory. This is the last day to take advantage of the opportunity to save some money due to a special discount price that is "10% off" the normal cost of $35,000 for these items. Consider these calculations: (a) How much interest (in $) will you save on this loan if you make the partial payment and don't purchase the additional serving supplies? (Round your answer to two…arrow_forward
- Austin is taking out an amortized loan for $94,000 to open a small business and is deciding between the offers from two lenders. He wants to know which one would be the better deal over the life of the small business loan, and by how much. Answer each part. Do not round intermediate computations, and round your answers to the nearest cent. If necessary, refer to the list of financial formulas. (a) A bank has offered him a 10-year small business loan at an annual interest rate of 11.3%. Find the monthly payment. (b) An online lending company has offered him a 8-year small business loan at an annual interest rate of 14.2%. Find the monthly payment. re) Suppose Austin pavs the monthly pavment each month for the full t 2021 Continue %23 & 2 3 7.arrow_forwardMandy Moore Dance Studio wishes to expand her dance studio and the bank has loaned her $100,000. The bank requires the business to maintain a current ratio of no less than 1.50. The expansion of the dance studio has been solid but not as well as expected. Due to the expansion, the current ratio is 1.40 as of December 15th. In reviewing the books, there is a contract for $10,000 which was signed on December 5", but the dance studio will not earn the money until January. In order to raise the current ratio, Mary is thinking of recording this as revenue in December. 1. By recording the revenue in December, determine the accounting principle that would dictate when the revenue should be recognized. 2. Identify the standard the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) have issued and how it pertains to this situation.arrow_forwardRead the scenario and answer the question. The net income of Cruz', a department store, decreased sharply during 20x5. Mark Cruz, owner of the store anticipates the need for a bank loan in 20X6. Late in 20X5 he instructed the accountant to record a P26,000 of furniture to the Cruz family, even though the goods will not be shipped from the manufacturer until January 20X6. Cruz also told the accountant not to make the following December 31, 20X5, adjusting entries: Salaries owed to employees P18,000 Prepaid insurance that has expired 5,300 QUESTION: Based on case 1, why did Cruz take this action? Is this action ethical? Give your reason, identifying the parties helped and the parties harmed by Cruz' action.arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT