Question : Smith Company in its 5th year of operations. To expand, : 4707
Smith Company is in its 5th year of operations. To expand, it borrowed $15 million from Miami Bank. As a condition for making the loan, the bank required Smith Co. maintain a current ratio of at least 1.50 and a debt ratio of no more than 0.50. Well, at December 15, it turns out expenses have brought the current ratio down to 1.47 and the debt ratio up to 0.51. Jack Smith, the CEO, is considering the negative result of reporting this current ratio to the bank. He will lose the loan and maybe his business.
He is considering recording this year some revenue on account that Smith Co. will earn next year from a large delivery. (This is called “improper revenue recognition” and is illegal). The contract for the delivery has been signed and Smith Co. will deliver the products during January of next year.
Propose a course of action for Smith Company that is ethical.