Acme Corporation uses the calendar year as their fiscal year for reporting purposes. Acme Corporation is...

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Accounting

Acme Corporation uses the calendar year as their fiscal year forreporting purposes. Acme Corporation is owned 100% by Jesse Smith.Jesse Smith is quite wealthy - he has over $3 million in a personalsavings account which is currently earning 2 one hundredths of 1%interest (or .0002 rate resulting in $600 per year). He also hasmany other investments. Acme Corporation has $300,000 of currentassets. Acme has Accounts Payable of $40,000 and various Payrollliabilities totaling $109,000. Acme also has a Note Payable in theamount of $800,000. There are no other liabilities. Interest hasbeen paid every year when due on December 31. The Note Payable isdue in $200,000 installments on June 30 of each year for the next 4years. The current interest rate on the note is 4%. However,according to the loan terms, if Acme's current ratio falls below 2,the interest rate will automatically increase to 7%. Since the noteis due in installments over the next 4 years, management ispresenting the Note on the balance sheet as a long term liability.Is Acme's management reporting their balance sheet appropriately?What recommendations do you have for management? How do theserecommendations impact the current ratio?

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4.2 Ratings (780 Votes)

Acmes management is not reporting the liability appropriately in the balance sheet As per accounting conventions any liability which is payable within 12 months of the end of the reproting period See Answer

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