Managerical Accounting, Fraud case question: John Johnson is the majority stockh

Question

Managerical Accounting, Fraud case question:

John Johnson is the majority stockholder in Johnson's Landscape Company, owning 52% of the company's stock. John asked his accountant to prepare a capital investment analysis for the purchase of new mowers. John used the analysis to persuade a loan officer at the local bank to loan the company $100,000. Once the loan was secured, John used the cash to remodel his home, updating the kitchen and bathrooms, installing new flooring, and adding a pool.

1. Are John's actions fraudulent? Why or why not? Does John's percentage of ownership affect your answer?

2. What steps could the bank take to prevent this type of activity?

Explanation / Answer

In case, if his actions were notified by the bank his percentage of ownership as a stockholder in Johnson's Landscape Company will definitely have an impact with the answer provided above.

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