Instructions:

Please read the following passage and answer the questions based the rubric's criteria.

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Narrative

Second Sight is a graphics design firm that prepares its financial statements using a calendar year. Diogenes Dogma, the company treasurer and vice president of finance, prepares a classified balance sheet as of December 31.

In January, this balance sheet will be submitted along with an application for a loan from Tyve Bank.

Cash	$ 25,000
Accounts Receivable	85,000
(additional assets of $140,000)
Total assets	$ 250,000

Diogenes Dogma is concerned about the accounts receivable balance, which includes a $56,000 loan to Igen Penge, the company president.

Igen Penge borrowed the money from Second Sight 18-months earlier for a down payment on a new home. Igen has orally assured Diogenes that he will pay off the loan within the next year. Because Igen Penge is the company president, Diogenes treats the amount due as part of its normal accounts receivable.

In addition, Diogenes knows that the bank will consider a large balance in accounts receivable more favorably than a large personal loan to a single individual. Diogenes reported the $56,000 in the same manner of the preceding year's balance sheet.

Discussion Questions:

1. 1. Is Diogenes behaving ethically by reporting the loan as a trade account receivable to Igen Penge the president of Second Sight rather than a personal loan? Why or why not?
   2. Who will be affected by Diogenes' decision?
   3. What are the GAAP requirements for this loan? How should it be recorded? Should Igen Penge be required to pay interest? Why or why not?