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Posted: February 11th, 2022
accounting discussion 6
Jim Tennison, L & B Company’s president, known as the corporate’s chief monetary officer, Fred Harden, into his workplace late Friday afternoon. Jim had been reviewing the projected monetary statements of L & B Company that will be issued as of year-end. Jim informed Fred he was frightened that the corporate’s liquidity place had been declining over the previous two years. Fred assured Jim that the corporate nonetheless had enough liquidity, and it had been steadily reducing its debt. Jim mentioned that there have been three or 4 main stockholders who have been very conservative and would elevate a number of questions concerning the firm’s declining liquidity ratios. Jim and Fred then determined to take out a two-year mortgage secured by some land L & B Company owned, put the money within the financial institution, and pay the mortgage off after January 1.
Jim informed Fred to account for the transaction as a long-term legal responsibility for monetary reporting functions. They agreed that this measure would remedy the issue of liquidity on the annual stockholders’ assembly as a result of the corporate’s ratios could be nearly equivalent to final 12 months. Jim was certain that many of the stockholders have been solely involved with internet revenue and ratios.
When you have been a stockholder of L&B Company, how would you are feeling about Jum and Fred’s thought? Have any moral ideas been violated?
If the transaction is booked as a debit to Money and a credit score to long-term Notes Payable, how will it have an effect on the corporate’s key present ratios and debt ratios?
Suppose Jim and Fred resolve to not take out the mortgage. Write a short notice to the stockholders justifying a lower in liquidity measures. Guarantee them that the corporate remains to be within the “protected vary”.
Record as many causes as causes as potential, each optimistic and unfavorable, for a lower in internet working capital.
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