Purchase Solution

Company loans: ethics, recording revenue, accounting principle, course of action

Not what you're looking for?

Ask Custom Question

A company has borrowed $3,000,000 to expand its production plant. As a condition for the loan, the bank has required that the company maintain a Current Ratio (current assets divided by total current liabilities) of at least 1.50. On December 15th, the company comptroller reports that the costs of expansion have brought the current ratio down to 1.40. The Board is considering what might happen if the business reports this ratio to the bank. One solution is to report revenue from a new sales contract that is scheduled to take effect in January.

1. How would recording this revenue in December affect the current ratio?

2. Is it ethical to record the revenue transaction in December?

3. What accounting principle is relevant to this situation?

4. What course of action should the company take?

Purchase this Solution
Solution Summary

This solution provides brief answers to four questions regarding company ethics in terms of a $3,000,000 loan. The expert discusses how recording this revenue would affect the current ratio, if it is ethical to record the revenue, what accounting principle is relevant to this situation.

Solution Preview

1. It will increase the current ratio as this will increase the current assets.

2. No, it is not ethical to record the revenue transaction in December as it's happening in January.

3. Full disclosure principle will apply. The full disclosure principle calls for financial ...

Purchase this Solution
Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

View More Free Quizzes
Related BrainMass Solutions

  • Revenue Recording and Current Ratio

    Indiainfoline.com This brief solution address how recording the revenue in December would affect the company in terms of current ratio, ethics, accounting principles and suggests what course of action the company should take.

  • Mobile Computer Company: advance convention-related payments

    Gaining control of accounting and record keeping allows you to end any dubious activities promptly. " That brings us to the accounting issue involved: the matching principle which states that revenue and expenses should be matched to the time period

  • Ethical Issue: Ladner Bread Expansion Loan

    This solution also states whether it is ethical to record the revenue early, including citing the accounting criteria, and proposes an ethical course of action for Ladner Bread.

  • Outdoors R Us Ethics

    There will be consideration of accounting standards and accounting principles for the ethical issues in recording revenue over the multiple accounting periods.

  • Current Liabilities and Contingencies

    Identify two alternatives for recording the probable loss. Evaluate each alternative in terms of values, positive consequences, and negative consequences. 5. Decide your course of action.

  • Conservatism in accounting; ethical issues of principles

    One could say that that standards applied to recognition of revenue are more rigorous than the standards applied to recording expenses and losses. What are some of the ethical issues of selecting accounting principles for a company?

  • Utility Ethics and Enron

    In this accounting method, the company would build an asset, such as a power plant, and before the power plant had generated any real revenue, would record the forecasted revenue in its income statement.

  • Ethical Challenges

    The accountant may be recognizing revenue that has not been received by the company and consequently profits that have not accrued to the company. These challenges can be addressed on two levels.

  • Financial Accounting Multiple Choice Questions

    108941 Financial Accounting Multiple Choice Questions 1. The requirement that only transaction data capable of being expressed in terms of money be included in the accounting records relates to the a. cost principle.

View More Related Solutions