please give me answer in relatable When Johnson Hardware Shop borrowed $20,000 from First Bank, it used its inventory as collateral for the loan. First Bank perfected its security interest by filing a financingstatement. The inventory was subsequently damaged by fire, and Flanders Insurance Co. paid Johnson Hardware $5,000 for the loss, but First Bank claimed the proceeds ofthe insurance. Was First Bank correct? Why or why not?

1. Secured Loan:First Bank was obliging and lent Johnson Hardware the money it needed.They pledged…

Answered: When Johnson Hardware Shop borrowed…

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter8: Subprime Lending Fiasco-ethics Issues

Section: Chapter Questions

Problem 5.2EC

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Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements required by prospective banks as a prerequisite to extending a loan to the client. The auditor knows whichever bank lends money to the client is likely to rely on the audited statements. After the audit report is issued, the bank that ultimately made the loan discovers that the audit client’s inventory and accounts receivable were overstated. The client subsequently went bankrupt and defaulted on the loan. The bank alleged that the auditor failed to communicate about the inadequacy of the client’s internal recordkeeping and inventory control. Moreover, the bank claims that the auditors were grossly negligent in not discovering the overvaluation of inventory and accounts receivable. The auditors asserted that there was no way for them to know that the client included in the inventory account $1 million of merchandise in transit to a customer on December 31, 2015. The shipping terms…
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