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:

Net Loss

The result when a company's total expenses exceed its total revenues during a specific period, indicating a financial loss.

Worksheet

A paper or electronic document used to organize and simplify accounting information before the preparation of financial statements.

Trial Balance

A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit columns to ensure that a company's bookkeeping system is mathematically correct.

Straight-Line Depreciation

A technique for distributing the expense of a physical asset across its lifespan in consistent yearly increments.