See attachment (2 separate assignments )
Strategic financial and accounting
Discuss board #1 (350 words)
Part I: Assume that Sunshine Realty Company borrowed $300,000 from Columbia First Bank and Trust. In recording the transaction, Sunshine erroneously recorded the receipt as a debit to cash, $300,000, and a credit to fees earned, $300,000.
Suppose you were an accounting consultant of Sunshine Realty Co.:
How would this error affect the equity of the trial balance?
How would this error affect the income statement, statement of stockholders’ equity, and balance sheet?
Explain why a set of financial statements (income statement, statement of stockholders’ equity, and balance sheet) would be useful to you in evaluating the loan request.
Respond to post (200 words)(cpw)
Part I
As an accounting consultant for Sunshine Realty Co., the error in recording the loan transaction would have significant implications on the equity of the trial balance. The misclassification of the transaction as a credit to fees earned instead of a credit to liabilities would result in an overstatement of the company's equity. Since the loan received should be recorded as a liability, the company's equity would be inflated, giving an inaccurate representation of its financial position. This error could mislead stakeholders and investors in evaluating the company's true equity levels.
Furthermore, this error would also impact the income statement, statement of stockholders' equity, and balance sheet. On the income statement, the misclassification would lead to incorrect revenue reporting. Fees earned would be overstated, impacting the company's profitability. This would, in turn, affect the net income, retained earnings, and ultimately the stockholders' equity as reported on the statement of stockholders' equity. The balance sheet would also be affected, as liabilities would be understated, and equity would be inflated due to the misclassification error.
A set of financial statements, including the income statement, statement of stockholders' equity, and balance sheet, would be invaluable in evaluating the loan request. By assessing these statements, one can comprehensively understand the company's financial health, profitability, and equity. The income statement provides an overview of the company's revenue, expenses, and net income, allowing for an assessment of its ability to generate profits and repay loans. The statement of stockholders' equity gives insights into the changes in equity over time, reflecting the company's financial performance and utilization of funds. Finally, the balance sheet offers a snapshot of the company's assets, liabilities, and equity, aiding in evaluating its overall financial position (Warren et al., 2022).
In conclusion, the misclassification of the loan transaction would have a detrimental impact on the equity of the trial balance and the income statement, statement of stockholders' equity, and balance sheet. A set of financial statements would support an adequate evaluation of the loan request by comprehensively understanding the company's financial position, profitability, and equity. Stakeholders and investors rely on these statements to make informed decisions about potential loans and investments.
A thought-provoking question: "How can businesses balance maximizing profitability and ensuring fair income distribution among employees, shareholders, and other stakeholders?"
Respond to post # 2 (200 words)(TW)
Part I:
The erroneous recording of the $300,000 loan receipt by Sunshine Realty Company would have significant impacts on both the equity section of the trial balance and the financial statements.
Effect on Equity in the Trial Balance:
The equity section of the trial balance is likely to be overstated. Equity is affected by the net assets of a business, and in this case, the cash, which is an asset, has been incorrectly increased. As a result, the equity section will show a higher amount than it should, leading to a misrepresentation of the company's financial position.
Effect on Financial Statements:
The impact on the income statement is significant, as fees earned should not include loan receipts. According to Nobes and Parker, an accurate income statement is crucial for assessing a company's profitability. In this case, the error could result in a distorted net income figure, affecting stakeholders' perception of Sunshine Realty's financial performance (Nobes & Parker, 2016).
Importance of Financial Statements in Evaluating a Loan Request:
Financial statements are fundamental for evaluating a loan request, providing a holistic view of a company's financial health. According to Wild, Shaw, and Chiappetta, lenders use financial statements to assess a borrower's creditworthiness. The misrepresentation caused by the error in recording the loan receipt could impact the lender's decision, highlighting the importance of accurate financial reporting in the loan evaluation process (Wild, Shaw, & Chiappetta, 2015).
Open-ended Question for Classmates:
Considering the critical role of accurate financial statements in evaluating a company's financial health, what strategies or tools do you think can be implemented to ensure that accounting errors, like the one described in Sunshine Realty's case, are minimized, or detected promptly?
