Ethics AP9-5 answer few short questions to best of your ability

AP9-5 thee tony hawk state park was built in early 2021. The construction was financed by a $3,000,000, 7% note due in 6 years, with payments of $51,147 required each month. the first year has not been as profitable as hoped. The discussion at the executive board meeting at the end of 2021 focused on the potential need to obtain additional financing. However, board members are concerned that the company’s debt level at the end of 2021 will make the company appear too risky to additional lenders. The balance note at the end of 2021 is $2,583,026. By the end of 2022, the 12 monthly payments will reduce the balance by an additional $417,116. Separate from the note, the company has the following amounts by the end of 2021: current assets of $3,100,00; current liabilities of $2,700,000; total equity $4,000,000

Jim Trost, the VP of Finance, tells board members that he plans to classify the full balance of that note at the end of 2021 as long term because the full term of the note is 6 years. He explains that lenders will be more willing to let the company borrow with a lower offer and interest rate if the company reports fewer current liabilities. Plus he plans to tell lenders there are no problem with long term solvency because the company’s long term profits will be used to pay its long term debt.

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1. Understand the reporting affect: how does jim’s decision affect the reported amount of current liabilities versus long time liabilities as of December 31st , 2021?

2. Specify the options: calculate the current ratio and debt to equity ratio at the end of 2021 (a) with (b) without jims assumption.

3. identify the impact: can jims decision affect lenders

4. make a decision: should jim record the full balance of the note as a long term liability in its balance sheet as of December 31st, 2021

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