Required Did the CFO handle the recording of the $5 million loan, the $2 million deposit and the two orders correctly? Support your answer with reference to the accounting principles. If you disagree with the CFO’s treatment, how would you record the four items in question? Support your answer with reference to the accounting principles.
It’s March 2020; the CFO of BGSB’s (Burlington Graduate School of Business) is reviewing the first draft of the 2019 draft Financials Statements. During her review she noted that the long-term loan payable category currently includes a $5 million loan payable, to First Global Bank, that is due in six (6) months. The CFO planned to officially meet with First Global before the loan was due and ask for an extension of the maturity date of the loan for five years. The CEO has had informal talks with First Global about extending the loan and she was guaranteed that the extension will be approved. She doesn’t believe that BGSB needed to include the $5 million loan in current liabilities because the plan (approved by the BGSB’s Board of Directors) was to have the loan extended for another five (5) years. She therefore recorded the loan as a long term Liability.
Additionally the CFO noted that in December 2019, BGSB received a $2 million deposit from the government for a major project. The contract calls for the development and facilitation of training courses for Government personnel. The training is to be conducted over the next 18 months. She recorded the $2 million as revenue in December 2019 because the contract was signed in December 2019 and she didn’t foresee any question about being able to collect on the contract.
Furthermore the CFO noted that in December 2019, she placed two orders
i. The first order was with a local company (via the telephone) for a new desk for her Office costing $15,000. Payment terms were 30 days after delivery.
ii. And the second order was also for her office was for a new Dell Laptop from amazon.com. She utilized the Schools credit card to place this order
Given the COVID19 epidemic, the shipment of each order did not occur for two months. That is, she only received the new desk and new laptop in February 2020. The local supplier will therefore will paid in March 2020 and Amazon only charged the credit card when the good were shipped in February 2020. Since both items were received in February. Their purchase was only recorded in February 2020 and therefore they were not included in the 2019 draft Financial Statements.
Required
Did the CFO handle the recording of the $5 million loan, the $2 million deposit and the two orders correctly? Support your answer with reference to the accounting principles. If you disagree with the CFO’s treatment, how would you record the four items in question? Support your answer with reference to the accounting principles.
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