Lucy

Lucy Shafer wants to borrow $100,000 to expand her dog-breeding business. She is preparing a set of financial statements to take to the local bank with her loan application. She currently has an outstanding loan from her uncle for $50,000. Lucy- uncle is allowing her to borrow the money at a very low interest rate, and she does not have to make any principal payments for 5 years. Due to the favorable terms of her loan from her uncle, Lucy has decided that it is not significant enough to disclose on her financial statements. Instead, Lucy has classified the $50,000 as contributed capital (equity), and the interest payments are included in miscellaneous expenses on the company- income statement.
Respond to the following questions:

What are the effects of Lucy- classification on the financial statements? (1 paragraph)
Are there any ratios that might be of concern to the local bank that will be misstated by Lucy- actions? (1 paragraph)
Do you think Lucy- actions are unethical? Suppose Lucy- uncle agrees to be a partner in the company and Lucy can afford to buy his share by repaying the $50,000 with interest. Does that change your opinion? (2 to 3 paragraphs)
Suggestions for Responding to Peer Posts

Compare and contrast your peer- response to your own. Were there any similarities or differences? 
Were the reasons your peer gave for his or her decision supported well?
What statements would you use to refute his or her position?
In your own words, please post a response to the Discussion Board and comment on other postings. You will be graded on the quality of your postings.

Grading Criteria

% of grade for this assignment

Response to assignment

80%

Peer Response (a minimum of 2)

15%

APA citation and references if needed or % will be assessed to peer response

5%

For assistance with your assignment, please use your text, Web resources, and all course materials.

Unit Materials

Unit 4 Course Materials