Issue 1. Scruffy Murphy is the president and principal stockholder of Scruffy's Bar & Grill Inc. To...

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Issue 1. Scruffy Murphy is the president and principal stockholder of Scruffy's Bar & Grill Inc. To expand, the business is applying for a $250,000 bank loan. To get the loan, Murphy is considering two options for beefing up the owners' equity of the business:

Robert · Accepted Answer

1.1. What is the Ethical issue?
The corporation has low creditworthiness and that is what is prompting the president Murphy to think on means of boosting its creditworthiness. However, the motive for doing this is unethical. The corporation wants to look good in the eyes of the lenders which will not truly be the case. The information will not reflect true and fair view of the company’s financial position and creditworthiness. 
2.2. Effects of the two options 
a) Option 1
This option is better in the sense that it increases the amount of equity capital in the business. The friend coming in the business will invest cash into the business as a shareholder and, therefore, he will become one of the owners of the corporation. Borrowing means that the company will pay interest on loan to the lenders.

Issue 1. Scruffy Murphy is the president and principal stockholder of Scruffy's Bar & Grill Inc. To expand, the business is applying for a $250,000 bank loan. To get the loan, Murphy is considering...

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