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Loan application Daryl Kirby opened Squid Realty Co. on January 1, 20Y3. At the end of the first year, the business needed additional capital. On behalf of Squid Realty Co., Daryl applied to Ocean National Bank for a loan of $375,000. Based on Squid Realty Co.’s financial statements, which had been prepared on a cash basis, the Ocean National Bank loan officer rejected the loan as too risky. After receiving the rejection notice, Daryl instructed his accountant to prepare the financial statements on an accrual basis. These statements included $65,000 in accounts receivable and $25,000 in accounts payable. Daryl then instructed his accountant to record an additional $30,000 of accounts receivable for commissions on property for which a contract had been signed on December 28, 20Y3. The title to the property is to transfer on January 5, 20Y4, when an attorney formally records the transfer of the property to the buyer. Daryl then applied for a $375,000 loan from Free Spirit Bank, using the revised financial statements. On this application, Daryl indicated that he had not previously been rejected for credit. Discuss the ethical and professional conduct of Daryl Kirby in applying for the loan from Free Spirit Bank.

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 3, Problem 2TIF
Textbook Problem
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Loan application

Daryl Kirby opened Squid Realty Co. on January 1, 20Y3. At the end of the first year, the business needed additional capital. On behalf of Squid Realty Co., Daryl applied to Ocean National Bank for a loan of $375,000. Based on Squid Realty Co.’s financial statements, which had been prepared on a cash basis, the Ocean National Bank loan officer rejected the loan as too risky.

After receiving the rejection notice, Daryl instructed his accountant to prepare the financial statements on an accrual basis. These statements included $65,000 in accounts receivable and $25,000 in accounts payable. Daryl then instructed his accountant to record an additional $30,000 of accounts receivable for commissions on property for which a contract had been signed on December 28, 20Y3. The title to the property is to transfer on January 5, 20Y4, when an attorney formally records the transfer of the property to the buyer.

Daryl then applied for a $375,000 loan from Free Spirit Bank, using the revised financial statements. On this application, Daryl indicated that he had not previously been rejected for credit.

Discuss the ethical and professional conduct of Daryl Kirby in applying for the loan from Free Spirit Bank.

To determine

Discuss the ethical and professional conduct of Person DK in applying for the loan from FS Bank.

Explanation of Solution

It is ethical for Person DK to prepare the financial statements for Corporation SR on an accrual basis. The revision in the financial statement would include $30,000 of accrual commission as of December 28, 20Y3 which would not be appropriate. In real estate contracts the contingencies like obtaining the loan, appraisals, environmental studies and others would make the contract as invalid...

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Chapter 3 Solutions

Financial And Managerial Accounting
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Ch. 3 - Accounts requiring adjustment Indicate with a Yes...Ch. 3 - Type of adjustment Classify the following items as...Ch. 3 - Adjustment for accrued revenues At the end of the...Ch. 3 - Adjustment for accrued expense Prospect Realty Co....Ch. 3 - Adjustment for unearned revenue On June 1, 20Y2,...Ch. 3 - Adjustment for prepaid expense The prepaid...Ch. 3 - Adjustment for depreciation The estimated amount...Ch. 3 - Effect of omitting adjustments For the year ending...Ch. 3 - Effect of errors on adjusted trial balance For...Ch. 3 - Vertical analysis Two income statements for Cornea...Ch. 3 - Classifying types of adjustments Classify the...Ch. 3 - Classifying adjusting entries The following...Ch. 3 - Adjusting entry for accrued fees At the end of the...Ch. 3 - Effect of omitting adjusting entry Paradise Realty...Ch. 3 - Adjusting entries for accrued salaries Paradise...Ch. 3 - Determining wages paid The wages payable and wages...Ch. 3 - Effect of omitting adjusting entry Accrued...Ch. 3 - Effect of omitting adjusting entry When preparing...Ch. 3 - Adjusting entries for unearned fees The balance in...Ch. 3 - Effect of omitting adjusting entry At the end of...Ch. 3 - Adjusting entry for supplies The balance in the...Ch. 3 - Determining supplies purchased The supplies and...Ch. 3 - Effect of omitting adjusting entry At March 31,...Ch. 3 - Adjusting entries for prepaid insurance The...Ch. 3 - Adjusting entries for prepaid insurance The...Ch. 3 - Adjusting entries for unearned and accrued fees...Ch. 3 - Adjusting entries for prepaid and accrued taxes...Ch. 3 - Adjustment for depreciation The estimated amount...Ch. 3 - Determining fixed assets book value The balance in...Ch. 3 - Book value of fixed assets In a recent balance...Ch. 3 - Effects of errors on financial statements For a...Ch. 3 - Effects of errors on financial statements For a...Ch. 3 - Effects of errors on financial statements The...Ch. 3 - Effects of errors on financial statements If the...Ch. 3 - Adjusting entries for depreciation; effect of...Ch. 3 - Adjusting entries from trial balances The...Ch. 3 - Adjusting entries from trial balances The...Ch. 3 - Adjusting entries On March 31, the following data...Ch. 3 - Adjusting entries Selected account balances before...Ch. 3 - Adjusting entries Trident Repairs Service, an...Ch. 3 - Adjusting entries Good Note Company specializes in...Ch. 3 - Adjusting entries and adjusted trial balances...Ch. 3 - Adjusting entries and errors At the end of April,...Ch. 3 - Adjusting entries On May 31, the following data...Ch. 3 - Adjusting entries Selected account balances before...Ch. 3 - Adjusting entries Crazy Mountain Outfitters Co.,...Ch. 3 - Adjusting entries The Signage Company specializes...Ch. 3 - Adjusting entries and adjusted trial balances...Ch. 3 - Adjusting entries and errors At the end of August,...Ch. 3 - The unadjusted trial balance that you prepared for...Ch. 3 - Analyze Amazon.com Amazon.com, Inc. (AMZN) is the...Ch. 3 - Analyze Pandora Media Pandora Media, Inc. (P)...Ch. 3 - Analyze World Wrestling Entertainment World...Ch. 3 - Analyze Chipotle Mexican Grill Chipotle Mexican...Ch. 3 - Analyze Nike The following data are taken from...Ch. 3 - Analyze and Compare ATT and Verizon Communications...Ch. 3 - Ethics in Action Chris P. Bacon is the chief...Ch. 3 - Loan application Daryl Kirby opened Squid Realty...Ch. 3 - Communication Delta Air Lines is a major passenger...Ch. 3 - Adjustments and financial statements Several years...

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