Daryl Kirby opened Squid Realty Co. on January 1, 2015. At the end of the first...
Daryl Kirby opened Squid Realty Co. on January 1, 2015. At the end of the first year, the business needed additional capital. On behalf of Squid Realty Co., Daryl applied to Ocean National Bank for a loan of $375,000. Based on Squid Realty Co.'s financial statements, which had been prepared on a cash basis, the Ocean National Bank loan officer rejected loan as too risky.
After receiving the rejecting notice, Daryl instructed his accountant to prepare the financial statement on an accrual basis. These statements included $65,000 in accounts receivable and $85,000 in accounts payable. Daryl then instructed his accountant to record an additional $30,000 of accounts receivable for commissions on property for which a contract had been signed on December 28, 2015. The title to the property is to transfer on January 5, 2016, when an attorney formally records the transfer of the property to the buyer.
Daryl then applied for a $375,000 loan from Free Spirit Bank, using the revised financial statements. On this application, Daryl indicated that he had not previously been rejected for credit.
Why do you think Ocean National Bank rejected the first loan application for begin too risky (Chapter 3 may contain some hints)? Discuss the ethical and professional conduct of Daryl Kirby in applying for the loan from Free Spirit Bank.
Homework Answers
Why do you think Ocean National Bank rejected the first loan application for begin too risky ?
Answer
I believe that the below would be possible reasons for the rejection of Daryl loan proposal by Ocean National Bank
- Tenure of the organisation
- Mode of the transactions which was on cash basis
- Financial statements of Daryl's company which showed that the liabilities where more than the assets
Every bank has to adhere to the policies and requirements laid by the central agencies. Is most cases the policies and requirements are related to the credit worthiness of the firm or the individual before granting any loan.
In the above scenario the credit worthiness of Daryl firm were risky in accordance to the above points which I mentioned in bullet form. Hence I believe due to the reasons which I mentioned it was difficult for Ocean National Bank to approve the loan proposal of Daryl and it was rejected.
Discuss the ethical and professional conduct of Daryl Kirby in applying for the loan from Free Spirit Bank.
Answer
Reapplying for loan was ethical however manipulating the financial statements and making false statement about reapplying for loan was unethical and unprofessional by Daryl. Most important ethical and professional ethics are listed as below
- Honesty
- Transparency
- Accountability
- Respect
- Integrity
In the above scenario Daryl has not followed this ethics and has made false statements and has done manipulation of financial statements which showed he was not honest while submitting the proposal and manipulation showed he did not maintained the transparency. Also he disrespected the Ocean National Bank by not telling the Free Spirit Bank that he had previously applied for loan with them. Hence this behaviour of Daryl was unethical and unprofessional.
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