In the "All About You" feature in this chapter, you learned how important it is for companies to report or disclose information about all liabilities, including potential liabilities related to an environmental clean-up. There are many situations in which you will be asked to provide financial information about your own liabilities. When you take on liabilities, your creditors will want to obtain information relating to the security for their loan such as the value of your assets, along with information about your income. Sometimes you will face difficult decisions regarding what to disclose and how to disclose it. Let us assume that at the present time you own a home and have a mortgage on it.

Instructions

How would you address the following situations in reporting your financial position to the parties involved below and to your own bank where you have your mortgage?

(a) Your friend obtained a bank loan for $20,000 but in order for him to get it, you had to sign a form that guaranteed that you would make the loan payments if your friend was unable to. Your friend has made all of the payments so far, and it appears he will be able to pay in the future. Do you have a liability at this time? What information would the bank want to know about you before it will allow you to guarantee your friend's loan?

(b) The company where you work is not doing very well, and it has recently laid off employees. You are still employed, but it is quite possible that you will lose your job in the next few months.