Case Study

Rainbow Party Stores (RPS) operates in 60 different locations throughout California and Oregon. Due to the recent recession, the company ran into cash flow problems and had to borrow cash from an investment group called, Sound Investments Inc. (SII). In exchange for 35% of the company's outstanding common stock, SII injected $1.5 million dollars into Rainbow Party Stores.

SII is not familiar with retail operations nor merchandising. The owner of SII, Chris B. was willing to lend money to RPS because he used to date the founder of RPS, Lisa H.

1. How should it be reported- (The question did not ask for the entry).

2. What Criteria should be used. (Questions to ask or observations to document).