The revenue recognition principle: The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed. Accrual basis of accounting: Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged. Cash basis of accounting: Cash basis of accounting refers to the recognition of financial transactions only when the cash is received or paid. To discuss: The ethical and professional conduct of Mr. DK to applying for the loan from F Bank.

Question

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 the loan as too risky. After receiving the rejection notice, Daryl instructed his accountant to prepare the financial statements on an accrual basis. These statements included $65,000 in accounts receivable and $25,000 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…

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Question

Chapter 3, Problem 3.1CP

To determine

The revenue recognition principle:

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

Accrual basis of accounting:

Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged.

Cash basis of accounting:

Cash basis of accounting refers to the recognition of financial transactions only when the cash is received or paid.

To discuss: The ethical and professional conduct of Mr. DK to applying for the loan from F Bank.

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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 the loan as too risky. After receiving the rejection notice, Daryl instructed his accountant to prepare the financial statements on an accrual basis. These statements included $65,000 in accounts receivable and $25,000 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…

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