Ron Is an Accountant Who Was Contacted by Zebra Toy

question 35

Essay

Ron is an accountant who was contacted by Zebra Toy Company to prepare financial statements.Zebra Toy Company told Ron that it wished to present these documents to Lion Wholesalers,Inc. ,a large supplier of toys.If Lion is convinced that Zebra Toy Company is financially solid,it will issue Zebra a large line of credit.
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After Ron prepares the financial documents,Zebra presents the information to Lion Wholesalers and also to Tiger Toy Company,another wholesaler of toys.Zebra wishes to obtain a line of credit from Tiger as well as from Lion.If Ron committed a serious error by overstating Zebra Toy Company's financial soundness and the two creditors,Lion and Tiger,are damaged as a result,can these third parties recover damages from Ron? Explain.

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Definitions:

Pretax Income

The income earned by a company before deducting taxes, representing the company's profitability after all expenses except taxes.

Accrued Expenses

Liabilities (payables) created when expenses are incurred, but cash will be paid in the future; created at end of period during the adjustment process to reflect the amount of expense incurred that the company will pay in the future.

Depreciation Expense

Distributing the expense of a physical asset throughout its lifespan.

Accrue Interest Expense

The recording of interest expense that has been incurred but not yet paid, typically on borrowed funds.