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Ethics Challenge - Venice Inline Inc

Text: Introduction to Managerial Accounting, 3rd edition, Brewer-Garrison-Noreen, ISBN# 007-304-8836

QUESTION(S) #1 and #2, Page 629-630: Please provide a solution to the problem that is highlighted in yellow.

Thanks in advance.


Solution Preview

Please see the attached file.

The loan officer stipulated that the current ratio prior to obtaining the loan must be higher than 2.0, the acid-test ratio must be higher than 1.0, and the interest on the loan must be less than four times net operating income. These ratios are computed below:

The company would fail to qualify for the loan because both its current ratio and its acid-test ratio are too low.

2. By reclassifying the $45 thousand net book value of the old machine as inventory, the current ratio would improve, but there would be no ...

Solution Summary

The posting has solution to the ethics challenge case of Venice Inline relating to the loan request of the firm.