would like to expand his business and has borrowed $100,000. As a condition for making this
loan, the bank requires that the business maintain a current ratio of at least
expansion costs have brought the current ratio to 1.4 on Dec. 15. To avoid this
decrease in current ratio Salem record in December $10,000 of revenue that the
business will earn in January of next year. The contract for this job has been
Journalize the revenue transaction, and indicate how
recording this revenue in December would affect the current ratio.
Discuss whether it is ethical to record the revenue
transaction in December. Identify the accounting principle relevant to this
situation, and give the reasons underlying your conclusion.
company facing its first annual net loss as the end of the year approached and
he is under the pressure from the company’s creditors to report positive net
income for the year. He told the controller to record the $ 10,000 incoming
bank loan as a revenue instead of a loan. That would nudge the company’s income
into positive territory for the year, and then, he said, the entry could be corrected in January when
the loan was repaid.
How this action affect the year-end income statement? How
would it affect the year-end balance sheet?
If you were one of the company’s creditors, how would this
fraudulent action affect you?