Essay: Fred Stern & Co

Sample Essay

Although the balance sheet depicted a large amount of capital surplus and a certificate from the auditors was issued declaring the correctness of the information presented in this balance sheet but the actual condition of Fred Stern & Co. was quite weak and the company was insolvent and could not bear any more liabilities and there were several assets on the balance sheet which were fictitious. Fred Stern & Co. used the balance sheet and certificate from the auditors to obtain credit from various sources including Ultra mares.

Fred Stern & Co. and Ultra mares had previously engaged in business activities on cash basis and when Fred Stern & Co. approached Ultra mares for a credit facility the latter demanded a certified balance sheet which was eventually provided by the former company through the public accountancy firm Touché. Ultra mares started providing selling goods to Fred Stern and Co. on credit basis and this practice continued throughout 1924. In December of that same year Ultra mares had provided goods to Fred Stern & Co. in three instances amounting to $100,000, $25,000 and $40,000. Ultra mares did not receive any security on particular amounts of the loan. As the company was already facing difficulties and was insolvent Fred Stern & Co. eventually declared bankruptcy on January 2, 1925. Ultra mares had lost its money due to loans provided to the now bankrupt company in lieu of the balance sheet and certificate issued by the public accountants firm.

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