Concept explainers
1.
Ethical Case Study:
Case Summary:
CF president of R Enterprises applied for a bank loan from FF Bank for $175,000. FF Bank requests for the financial statement of R Enterprises, as a basis to provide the loan. CD instructs the accountant of R Enterprises to provide the balance sheet alone due the net loss in the previous year.
To Explain: If CD is behaving in a professional manner by omitting some of financial statements.
2. a.
To Provide: The list of items owners would or would not like to provide.
b.
To Explain: The information required by the bank before extending loan.
c.
To Explain: The common interest shared by the bank and business owners.
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Chapter 1 Solutions
Cengagenow?v2, 1 Term Printed Access Card For Warren/reeve/duchac?s Accounting, 27th
- Assume that you are the controller of a business that provides legal services to clients. Suppose that the company has had a tough year, so the revenues have been lagging behind, based on previous years standards. What would you do if your boss (the chief executive officer [CEO] of the company) asked to reclassify a transaction to report loan proceeds of $150,000 as if the cash came from service fee revenue from clients instead. Would following the CEOs advice impact the companys accounting equation? How would reclassifying this one transaction change the outcome of the balance sheet, the income statement, and the statement of retained earnings? Would making this reclassification change the perception that users of the financial statements would have of the companys current year success and future year potential? Write a memo, detailing your willingness (or not) to embrace this suggestion, giving reasons behind your decision. Remember to exercise diplomacy, even if you must dissent from the opinion of a supervisor. Note that the challenge of the assignment is to keep your integrity intact, while also keeping your job, if possible.arrow_forwardDelia Alvarez, owner of Delias Lawn Service, wants to borrow money to buy new lawn equipment. A local bank has asked for financial statements. Alvarez has asked you to prepare financial statements for the year ended December 31, 20--. You have been given the unadjusted trial balance on page 175 and suspect that Alvarez expects you to base your statements on this information. You are concerned, however, that some of the account balances may need to be adjusted. Write a memo to Alvarez explaining what additional information you need before you can prepare the financial statements. Alvarez is not familiar with accounting issues. Therefore, explain in your memo why you need this information, the potential impact of this information on the financial statements, and the importance of making these adjustments before approaching the bank for a loan.arrow_forwardRay, the owner of a small company, asked Holmes, CPA, to conduct an audit of the company’s records. Ray told Holmes that the audit must be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immediately accepted the engagement and agreed to provide an auditor’s report within three weeks. Ray agreed to pay Holmes a fixed fee plus a bonus if the loan was granted. Holmes hired two accounting students to conduct the audit and spent several hours telling them exactly what to do. Holmes told the students not to spend time reviewing the controls but to concentrate on proving the mathematical accuracy of the ledger accounts and to summarize the data in the accounting records that support Ray’s financial statements. The students followed Holmes’ instructions and after two weeks gave Holmes the financial statements, which did not include footnotes because the company did not have any unusual transactions. Holmes reviewed the statements and prepared an unqualified auditor’s report. The report, however, did not refer to GAAP or to the year-to-year application of such principles. Briefly describe each of the ten standards included in the PCAOB guidance and indicate how the action(s) of Holmes resulted in a failure to comply with each standard.arrow_forward
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