Management may be tempted to understate current liabilities when Select one: a. the company is negotiating...

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Question

Management may be tempted to understate current liabilities when Select one: a. the company is negotiating...

Management may be tempted to understate current liabilities when

Select one:

a. the company is negotiating a bank loan

b. expenses are too low

c. the company has excess cash

d. transactions never took place

business accounting

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Answer 1

Answer #1

Understating current liability will lead to increase in working capital as well as owners equity also.

Both of these components are required to be in good condition for the bank to give loans to company.

Therefore the correct option is A.

Option b and c doesn't conform to accounting principles and also management has no benefit in understating liability in these cases.

Option d is incorrect because if no transaction is there then no stating of liability is done . Why would we understate it

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Answer 2

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