WendyEller2-EthicsLesson-Unit5

WendyEller2-EthicsLesson-Unit5 - is using to inflate their...

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Class, Scenario: Paris Company makes a loan to London Company, which uses the money to  purchase men’s hats from Paris Company. London Company does not intend to repay the loan. Questions: What is the real effect of the arrangement between Paris Company and London  Company? Would the effect be any different if London Company intended to repay the loan?  Why or why not? Answers: (A) Paris Company is paid with the money just loaned to London Company. This may  be recorded to look like a sale in the accounting records. However, in reality Paris Company is  suffering a loss by shipping products for free. It is indeed a form of fraud that London Company 
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Unformatted text preview: is using to inflate their own revenues. When there was no intent to repay the loan, it is known as round tripping, a type of fraud used to inflate revenues. (B) Yes, the effects would be different if London Company repaid the loan. (C) The effects would be different if London Company repaid the loan, because Paris Company wouldnt be shipping products for free and would not lose the money they loaned in the first place. They would not be suffering their own loss in revenues. Wendy Eller...
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This note was uploaded on 12/08/2009 for the course AC114 AC114 taught by Professor Duchac during the Fall '09 term at Kaplan University.

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