In your examination of the financial statements, you see that there is a bank loan on the books. The average balance of the loan is $10,000 at the beginning of the prior year, and $6,000 at the end of the prior year. The interest expense on the income statement for the year is $1,740.

Checklist:

Calculate each red flag's impact on either revenues or expenses.

Calculate each red flag's impact on profitability.

Show a potential remedy or solution to address each flag.