Ed Eisler wants to open a caf in Digby, Nova Scotia. In need of cash, he asks a bank for a loan. The bank requests financial statements showing the likely results of operations for the year and the expected financial position at year-end. With little knowledge of accounting, Ed doesn't understand the request. Requirements 1. Explain to Ed the information provided by the income statement and the balance sheet. 2. Explain to Ed how items on the income statement are relevant to making a lending decision. 3. Explain to Ed how items on the balance sheet are relevant to making a lending decision. 4. Given that the bank will use the income statement and balance sheet to make a lending decision, how might Ed be biased to present key items on each of these statements? Would it be ethical for Ed to do this and why? Requirement 1. Explain to Ed the information provided by the income statement and the balance sheet. The reports the revenues and expenses of a particular entity Total revenues minus total expenses equals Requirement 2. Explain to Ed how items on the income statement are relevant to making a lending decision. A lender would require this information in order to predict Requirement 3. Explain to Ed how items on the balance sheet are relevant to making a lending decision. The reports the assets, liabilities, and owners' equity of the entity Because borrowers pay loans with assets, a lender Liabilities, or debts, represent creditors' claims to the business's assets. Owners' equity is the wants to know Requirement 4. Given that the bank will use the income statement and balance sheet to make a lending decision, how might Ed be biased to present key items on each of these statements? Would it be ethical for Ed to do this and why? Ed may be biased to report and than are realistic to expect, which would result in the income statement reporting income than the business will likely earn. Because the bank will use the balance sheet to assess whether the business will have sufficient to repay its liabilities, including any new loan from the bank, Ed may be biased to report more assets and fewer liabilities than the business actually has, which would result in a more favourable financial position than is warranted. Would it be ethical for Ed to do this and why? It be ethical for Ed to report the business's financial information this way because he would be deliberately misrepresenting its performance and financial position, which could mislead the bank into approving a loan to him that they otherwise would not make. This which is