Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the bank showing that the company has a current ratio of 1.2 or better. After reviewing the annual reports, the CEO, N, O. Scrooge, approached Carl Hauptfleisch, the CFO, and stated, “We’ve decided we are going to move all our long-term debt investments into our brokerage account so we can sell them soon. Carl, go ahead and make the adjusting entries as of the current year-end.” Carl made the adjustments even though he doesn’t think the company will actually go ahead with the planned sale of the long-term debt investments. The subsequent year, the economy turned, and the company’s navel revenues dropped more than 60%. Wild Adventure eventually defaulted on the First Bank loan. Requirements What effect did the adjustments have on the financial statements? What effect did the adjustments have on the current ratio? What type of information in the financial reports would have helped the bank detect this reclassification? Has a fraud occurred? If so, what is the fraud?
Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the bank showing that the company has a current ratio of 1.2 or better. After reviewing the annual reports, the CEO, N, O. Scrooge, approached Carl Hauptfleisch, the CFO, and stated, “We’ve decided we are going to move all our long-term debt investments into our brokerage account so we can sell them soon. Carl, go ahead and make the adjusting entries as of the current year-end.” Carl made the adjustments even though he doesn’t think the company will actually go ahead with the planned sale of the long-term debt investments. The subsequent year, the economy turned, and the company’s navel revenues dropped more than 60%. Wild Adventure eventually defaulted on the First Bank loan. Requirements What effect did the adjustments have on the financial statements? What effect did the adjustments have on the current ratio? What type of information in the financial reports would have helped the bank detect this reclassification? Has a fraud occurred? If so, what is the fraud?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 9MC: Now assume that it is several years later. The brothers are concerned about the firm’s current...
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Wild Adventure conducts tours of wildlife reserves around the world. The company recently purchased a lodge in Adelaide, Australia, securing a 4% mortgage from First Bank. In addition to monthly payments, Wild Adventure must provide annual reports to the bank showing that the company has a
After reviewing the annual reports, the CEO, N, O. Scrooge, approached Carl Hauptfleisch, the CFO, and stated, “We’ve decided we are going to move all our long-term debt investments into our brokerage account so we can sell them soon. Carl, go ahead and make the
Carl made the adjustments even though he doesn’t think the company will actually go ahead with the planned sale of the long-term debt investments. The subsequent year, the economy turned, and the company’s navel revenues dropped more than 60%. Wild Adventure eventually defaulted on the First Bank loan.
Requirements
- What effect did the adjustments have on the financial statements? What effect did the adjustments have on the current ratio?
- What type of information in the financial reports would have helped the bank detect this reclassification?
- Has a fraud occurred? If so, what is the fraud?
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