=+Cliff Hall opened Meridian Co. on January 1, 2009. At the end of the first year, the business needed additional capital. On behalf of Meridian, Cliff applied to Federal National Bank for a loan of $300,000. Based on Meridian financial statements, which had been prepared on a cash basis, the Federal National Bank loan officer rejected the loan as too risky.

After receiving the rejection notice, Cliff instructed his accountant to prepare the financial statements on an accrual basis. These statements included $48,500 in accounts