Ok, the case is this.

Question

Six months ago, you closed your business. Now, a person has expressed an interest in acquiring the business. The potential buyer requests a current balance sheet, but you provide her with the one that was prepared just prior to closing.

1) Will the balance sheet be acceptable by the buyer and her accountant?
2) Which GAAP(s) affect this situation? Explain.

Here is my answeres:

1) I think that this balance sheet is obsolutely acceptable, because it shows how this business was doing before closing.

2) I think that this affects The Continuing Concern Concept, because this balance sheet shows that this business will continue to operate.

Is this correct?

Here is the second case:

Martha Higgins is currently trying to borrow some money from the bank. She has listed her personal automobile(25$000) On the business balance sheet to make the statement look more attractive.

1) Is this a resonable this to do? No, this is not a resonable thing to do.

2) Which GAAP(s) affect this situation? This affects The business entity concept. It states that the accounting for business organization and personal affairs must be on a separate balance sheet.

Is this right?

Answer 1

For the first case:

1) The balance sheet may be acceptable to the buyer and her accountant. However, they might also request an updated balance sheet to have a more accurate understanding of the business's current financial situation. Although the balance sheet shows how the business was doing before closing, it may not accurately reflect the business's current financial position after being closed for six months.

2) While your mention of the Continuing Concern Concept is not incorrect, the more applicable GAAP for this situation would be the Full Disclosure Principle. This principle requires that financial statements, such as balance sheets, include all information necessary for the reader (in this case, the prospective buyer) to obtain an accurate understanding of the financial situation. To be in compliance with the Full Disclosure Principle, you should disclose that the balance sheet is from six months ago and possibly provide an updated balance sheet if requested.

For the second case:

1) You are correct that this is not a reasonable thing to do.

2) You are also correct that the GAAP affecting this situation is the Business Entity Concept. This concept requires that personal and business transactions are kept separate and not combined on a balance sheet. By listing her personal automobile on the business balance sheet, Martha Higgins is violating this principle.