Chisos Manufacturing

3-63 Case Study Chisos Manufacturing Company has received a one hundred-million-dollar loan with the Rio Grande National Bank. However, there was an agreement between Chisos and the bank that they have to keep a current ratio greater than 1.5 throughout the year, and the latest financial statement shows that the company will violate the current ratio agreement. This most likely will cause a bunch of problems for the company. The bank is notorious for raising interest rates for companies who break the agreement, and this violation makes it difficult for Chisos to receive reasonable loans in the future. There are options for Chisos Manufacturing Company, but both options are considered to be ethically wrong. Chisos has come up with two different options to settle the dilemma. Option one for them is to switch the classification of their long-term investment property to short-term investment property to be held for sale. This option would force management to release a statement stating that they plan to sell the property …show more content…
We also know that as soon as the threat of the broken agreement subsides that it will be switched back to a long-term investment the very next year. This option violates the Generally Accepted Accounting Principles (GAAP), which are the rules, regulations and guidelines that accountants in the United States use to dictate whether their practices are legal and ethical. GAAP is controlled by the Financial Accounting Standards Board (FASB) and was made to give specific guidelines that should be followed by all accountants. However, GAAP is not a law so there is nothing wrong with violating it unless it has run ins with other issues that are a law. Deciding to go with option number one is simply ethically wrong, and I do not agree with