John Johnson is the majority stockholder in Johnson's Landscape Company, owning 52% of the company's stock. John asked his accountant to prepare a capital investment analysis for the purchase of new mowers. John used the analysis to persuade a loan officer at the local bank to loan the company $100,000. Once the loan was secured, John used the cash to remodel his home, updating the kitchen and bathrooms, installing new flooring, and adding a pool.

Requirements 1. Are John's actions fraudulent? Why or why not? Does John's percentage of ownership affect your answer?

2. What steps could the bank take to prevent this type of activity? 11-55