Question: Tina Adams owns and operates the Cottage Cafe Tina has

Tina Adams owns and operates the Cottage Cafe. 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 Cafe with the credit application. Tina is concerned because the most recent balance sheet for the Cottage Cafe 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. To increase the Cottage Cafe’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 Cafe 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?

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  • CreatedJuly 08, 2015
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