Ima Broke Is the Sole Owner of Miracles,Inc

question 101

Essay

Ima Broke is the sole owner of Miracles,Inc.Ima needs another loan from a bank to expand her business.In order to improve the chances of receiving a loan,she decides to report the principal of one of Miracles,Inc.'s loans as contributed capital instead of a liability on the balance sheet.Discuss the ethical issue with Ima's treatment of the loan.

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Definitions:

New Equity

New equity refers to funds raised by a company through the issuance of new shares in the equity market.

Interest Expense

The cost incurred by an entity for borrowed funds, often expressed as an annual rate.

Long-Term Debt

Borrowings that are due for repayment in more than one year's time, used to finance a company's operations beyond its immediate needs.

Marginal Tax Rates

The rate at which the last dollar of income is taxed, reflecting the percentage of tax applied to your income for each tax bracket in which you qualify.