Adventures in Wild Life conducts tours of wildlife reservesaround the world. They have recently purchased a new lodge in Adak,Alaska, utilizing a 4% mortgage from Bank of Alaska. As part of theagreement they must provide an annual report showing they areachieving a current ratio of 1.2 or better. In order to ensure theyachieve this ratio, the CEO requested the CFO to reclassify thelong-term debt investments into brokerage accounts to allow them tosell them soon. The adjustments were done knowing the company wasnot planning on selling these long-term investments. The economytook a downturn and the business saw revenues drop more than60%.
- Explain how the move of long-term investments to brokerageinvestments would change the financial statements and how thismovement would affect the current ratio.
- What information on the financial statements should have shownthe bank of this movement?
- Determine if there was fraud in this movement and the type offraud.
