USA Owner requested loan liability be moved from subsidiary to parent LLC.


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Hello. I'm an accounting student that's employed by a company that consists of a parent company with 4 subsidiaries. One of the company owners is trying to get a loan for one of the subsidiaries for a piece of equipment. Until recently, the company was backed by a wealthy friend that would make loans for equipment but the relationship has soured somewhat and the owners are looking at a traditional bank loan. The problem is that the company that needs the piece of equipment has a considerable amount of debt payable to the friend and the company is showing a poor current ratio.

So the owner has requested that I transfer the liability to the parent company to improve the balance sheet in order to procure the bank loan. The subsidiary has used the cash loaned to it in a previous period as working capital and has little cash in reserve. My question is: Is it even ethical to move the liability to the parent company to improve the subsidiary's financials and if so how would you book it? The owner is convinced that the parent can assume the subsidiary's debt but even if the parent booked the liability it would still only be able to pay back the loan with payments from the subsidiary as the parent receives no income so the subsidiary would have the same liability to the parent company. Seems very shady to me and my refusal to do so may cost me my job. Am I wrong? Is there a legitimate way to do this?
 
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Fidget

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I don't know what the legalities of it would be in the U.S, but in general accountancy, it would fall foul of the concept of presenting true and fair financial statements unless it was disclosed that the parent company had taken on whatever the debt is along with any caveats relating to it. Otherwise the financials presented by the company would be misleading if no mention was made of the fact that the parent had taken a debt off it.
 

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