As an executive you are faced with what you consider a temporary but significant cash shortage...

As an executive you are faced with what you consider a temporary but significant cash shortage that cannot be covered through existing credit lines. A well-known mezzanine lender offers you a one-year loan at 18% APR. Under which circumstances should you consider this loan?

Expert Solution

First, I will search for alternative sources where i get the amount with low interest. I didn't get any opportunity i will take loan from him at an agreed interest rate.Now, I have two alternatives.They are:- 1.I will shown it as a loan in my books. 2. I will treat it as a personal loan and bring it as a capital. In first case, I debit the interest to profit and loss account and shown the loan amount as liability in balance sheet. In the second case, I will add this amount to capital as additional capital in balance sheet.

I gave a description on how to treat this loan and whether to accept it or not. If you like my answer,please leave an up-vote. It is highly appreciated. Thanks in advance.

keosha answered 1 year ago

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