John Johnson is the majority stockholder in Johnson’s Landscape Company, ­owning 52% of the company’s stock. John asked his accountant to prepare a ­capital investment analysis for the purchase of new mowers. John used the analysis to ­persuade a loan officer at the local bank to loan the company $ 100,000. Once the loan was secured, John used the cash to remodel his home, updating the kitchen and bathrooms, installing new flooring, and adding a pool.

Requirements

1. Are John’s actions fraudulent? Why or why not? Does John’s percentage of ­ownership affect your answer?

2. What steps could the bank take to prevent this type of activity?