Question
Read the attached case. Assume that you are Alice Li the, Controller of Exeter. Write a letter to Hank Snow, the owner of Exeter, explaining
Read the attached case. Assume that you are Alice Li the, Controller of Exeter. Write a letter to Hank Snow, the owner of Exeter, explaining why you think recording the loan as construction revenue is or is not an acceptable solution to the net loss problem. Discuss the ethical implications and the effect of recording this transaction incorrectly would have on the income statement and balance sheet. Address the objectives of the financial statements and the elements of sound financial reporting. Your letter should be professional. The letter should be one page long.
raud Case F:1-1 Exeter is a building contractor on the Gulf Coast. After losing a number of big lawsuits, it was facing its first annual net loss as the end of the year approached. The owner, Hank Snow, was under intense pressure from the company's creditors to report positive net income for the year. However, he knew that the controller, Alice Li, had arranged a short-term bank loan of $10,000 to cover a temporary shortfall of cash. He told Li to record the incoming cash as "construction revenue" instead of a loan. That would nudge the company's income into positive territory for the year, and then, he said, the entry could be corrected in January when the loan was repaidStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started