Assume that in 2021 the line of outdoor products has not been going well and the company had to obtain additional funding in 2021 from two major banks to fund research and development as well as inventory production. The company chose to take out a $20 million loan with interest expense of $1 million per year and with the full principal payment due in 10 years. The second debt was a short term note of $5 million that is due back to the lender at the end of 2022 with a one-time payment of $6.5 million.

Other key financial data for 2021 was the following:

(1) As the auditor, what type of ratio(s) are most affected by the additional bank funding? Why?

(2) What are two specific ratios that you think are important to analyze as part of the audit? Why?

Answer rating: 100% (QA)

1 The following ratios are most affected by the additional bank funding Debttoequity ratio This rati... View the full answer