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-   -   Ethical issue 2 (https://www.askmehelpdesk.com/showthread.php?t=99084)

  • Jun 6, 2007, 12:41 PM
    purpose
    Ethical issue 2
    ANY THOUGHTS ON THIS
    Victoria British Auto Parts is having a bad year. Net income is only $37,000. Also, tow important overseas customers are falling behind in their payments to Victoria, and Victoria’s accounts receivable are ballooning. The company desperately needs a loan. The Victoria board of directors is considering ways to put the best face on the company’s financial statements. Victoria’s bank closely examines cash flow from operations. Daniel Peavey, Victoria’s controller, suggests reclassifying as long-term the receivables from the slow-paying clients. He explains to the board that removing the $80,000 rise in accounts receivable from current assets will increase net cash provided by operations. This approach may help Victoria get the loan.
    Required:
    1 Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Victoria look better?
    2 Under what condition would the reclassification of the receivables be ethical? Unethical?
  • Jun 10, 2007, 09:17 AM
    CaptainForest
    What do YOU think the answers are?
  • Jun 11, 2007, 05:18 AM
    purpose
    Not Sure!
  • Jun 11, 2007, 05:20 AM
    Capuchin
    You're not sure what you think? Oh dear.

    If you can outline where you are with your thinking, then we can move forward from there towards an answer.
  • Nov 28, 2007, 03:17 PM
    rsenn
    Quote:

    Originally Posted by purpose
    ANY THOUGHTS ON THIS
    Victoria British Auto Parts is having a bad year. Net income is only $37,000. Also, tow important overseas customers are falling behind in their payments to Victoria, and Victoria’s accounts receivable are ballooning. The company desperately needs a loan. The Victoria board of directors is considering ways to put the best face on the company’s financial statements. Victoria’s bank closely examines cash flow from operations. Daniel Peavey, Victoria’s controller, suggests reclassifying as long-term the receivables from the slow-paying clients. He explains to the board that removing the $80,000 rise in accounts receivable from current assets will increase net cash provided by operations. This approach may help Victoria get the loan.
    Required:
    1 Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Victoria look better?
    2 Under what condition would the reclassification of the receivables be ethical? Unethical?


    Different people have different ethics. To the company officers any action that advances their personal interests may be considered ethical. Others may have different measures for what is ethical. Until one knows the standards of ethics in objective terms, then the ethics part of the question is not answerable with any validity.

    And, as to better, different people will again have different ideas of better. Reclassifying the A/R as a long term asset will hurt the current ratio. That's a common measure of financial health.

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