Business
Question 1
In this case, the first loan agreement was between Agile Corporation and Hi Finance Company. The collateral attached to the loan protects the interest of the lender (HFC) such that if the borrower defaults, the lender can use the collateral against the amount borrowed. When a party enters into such transaction and a valid agreement is made, the transaction is secured. HFC, being the first lender, is referred to as the senior lender and has priority over the collateral. Metro Bank is the second lender hence the loan is junior to that of HFC. The interest of HFC is protected hence it will have the first claim over the inventory and proceeds pledged by Agile Corporation as collateral. In this case, the inventory will be sold and HFC will be paid $1 million or the total proceeds if less than $1 million. Any amount left will be paid to Metro Bank. In such transactions it is the responsibility of the second lender to determine if there are any liabilities attached to the assets pledged as security. Ignorance of such is not a defense for the second lender.
Question 2
An insurance contract is only valid if the insured has an insurable interest in the property insured (Beatty, 2014, p. 454). When a property is subjected to a mortgage or is used as collateral, the borrower cannot sell the property without the consent of the lender. The lender is required to register a lien on the property with either the county or state government. The borrower would be required to settle the lender before he/she is allowed to sell the property to a third party. The lender has no recourse when it fails to take necessary steps to protect the lien on the property. Eagles Sales Company had sold the warehouse to Interstate hence it does not have an insurable interest in the property. This implies that Eagles insurance contract is no longer valid even though it kept the policy. First National Bank agreed to act the mortgagee of Interstate hence it has an insurable interest in the warehouse. Therefore, the insurance contract would have a mortgagee clause that gives special rights to First National Bank. First National Bank will claim the loss and pay any excess amounts to Interstate. Interstate can claim premiums from the insurance company.
Question 3
Under Florida statutes, a plaintiff is required to apply for a writ of garnishment if there is a court judgement against the defendant. The court shall then attach such writ to the defendant (Leg.state.fl.us, 2016). The writ of garnishment implies that the wages and other assets of the defendant will be used to pay the court judgment against him. However, the defendant can request a hearing for exemption of garnishment. Florida Statutes has limitations on the amount of wages that can be garnished. The creditor must obtain a court order unless the garnishment is for unpaid income taxes, child support ordered by the court and defaulted student loans, among others. Wages can only be garnished if they are at least 30 times the federal minimum wage. Besides, the amount garnished is restricted to 25% of the debtor’s disposable income. The creditor has to return to court for separate orders to garnish wages unless the garnishment falls among the types listed above.
Question 4
Accounting is a process through which financial information is identified, recorded, measured, classified, verified, summarised, interpreted and communicated to the relevant users (Needles & Powers, 2008). It includes recording transactions, analysing the transactions, keeping financial records as well as conducting audits (Needles & Powers, 2008). Accounting also involves determination of taxation and giving the corresponding advice to the relevant authority. Financial management refers to the control of financial resources in an organization. It involves efficient and effective allocation of financial resources to achieve the goals of the firm. Financial management decisions include capital investment, dividend, financing, among other decisions.
Difference between finance and accounting
The major difference is that finance involves the planning and allocation of resources while accounting involves keeping records of the use of these resources. A financial manager would determine the appropriate dividend policy for the firm while the accountant will keep records of the dividends paid. Financial management influences policies regarding the management of financial resources in an organization. Accounting, on the other hand, provides information on the usage of these financial resources (Needles & Powers, 2008). I would use financial management to formulate policies on management of financial resources and use accounting to keep track of the use of financial resources thus provide information for evaluating the effectiveness of financial management policies.
Accounting v. finance
If I were to pick the two, I would choose finance. I have an ambition to make a great impact in the organizations I work. Finance plays a bigger role than accounting. Financial management influences policies that determine the overall use of financial resources including the accounting processes in the organization. Financial management decisions have a greater impact on the direction of the firm than accounting decisions.
Question 5
The decision in this case requires a critical analysis of the restaurant’s financial statements to determine its ability to purchase the smoker without interfering with the operating activities. Financial statements required are the balance sheet, income statement and the statement of cash flows (Needles & Powers, 2008). The balance is used to determine the cash ratio that shows the amount of cash available for the restaurant’s short-term obligations. The statement of cash flows indicates the amount of cash available at the end and the beginning of the period as well as the sources and uses of cash during the year. It is important to understand the company’s cash flow needs and sources and balance the two. Besides, it will help determine whether the restaurant can finance the purchase through internal funds or through borrowing. The income statement helps in ascertaining the profitability of the restaurant’s operations, which is an important driver of liquidity and cash flow availability.
Question 6
Sharnell plays the role of financial management at Orange Industries. It involves evaluating, analysing and interpreting financial information provided by John and advise the top management accordingly (Needles & Powers, 2008). On the other hand, John plays the role of an accountant in the company. He gathers information on financial transactions and prepare financial statements. It is necessary to recognise the differences between accounting and financial management to avoid conflict of roles. In any big organization, the two roles cannot be played by an individual. However, the two functions are interdependent. Financial managers need accounting information to make sound financial decisions. I believe that financial management plays a bigger role that accounting. Financial management decisions such as dividend decisions, investment decisions, financing, among other decisions directly influence shareholders’ wealth maximization. Therefore, I would choose to play a financial management role at the company if I were to choose between accounting and financial management.
References
Beatty, J. (2014). Essentials of business law. Mason, OH: South-Western Cengage Learning.
Needles, B. & Powers, M. (2008). Financial accounting (2nd ed.). Boston: Houghton Mifflin.
Statutes & Constitution: View Statutes : Online Sunshine. (2016). Leg.state.fl.us. Retrieved
26 June 2016, from http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0000-0099/0077/Sections/0077.041.html
