Adventures in Wild Life conducts tours of wildlife reserves around the world. They have recently purchased a new lodge in Adak, Alaska, utilizing a 4% mortgage from Bank of Alaska. As part of the agreement they must provide an annual report showing they are achieving a current ratio of 1.2 or better. In order to ensure they achieve this ratio, the CEO requested the CFO to reclassify the long-term debt investments into brokerage accounts to allow them to sell them soon. The adjustments were done knowing the company was not planning on selling these long-term investments. The economy took a downturn and the business saw revenues drop more than 60%.
- Explain how the move of long-term investments to brokerage investments would change the financial statements and how this movement would affect the current ratio.
- What information on the financial statements should have shown the bank of this movement?
- Determine if there was fraud in this movement and the type of fraud.