Tina Adams owns and operates the Cottage Café. Tina has requested a credit application from UMT, Inc., a major food supplier, that she hopes to begin purchasing inventory from. UMT, Inc., has requested that Tina submit a full set of financial statements for the Cottage Café with the credit application. Tina is concerned because the most recent balance sheet for the Cottage Café reflects a current ratio of 1.24. Tina has heard that most creditors like to see a current ratio that is 1.5 or higher. In order to increase the Cottage Café’s current ratio, Tina has convinced her parents to loan the business $25,000 on an 18-month long-term note payable. Tina’s parents are apprehensive about having their money “tied up” for over a year. Tina reassured them that even though the note is an 18-month note, the Cottage Café can, and probably will, repay the $25,000 sooner.

1. Discuss the ethical issues related to the loan from Tina’s parents?
2. Why do you think creditors like to see current ratios of 1 .5 or higher?

  • CreatedApril 29, 2014
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