Ethics

Additional Ethics Cases

Ethics Case 1

Health Corporation has several current notes receivable on its year-end balance sheet. While collection seems certain, it may be delayed beyond one year. Because of this, the controller wants to re-classify these notes as non-current. Health's treasurer also thinks that collection will be delayed but does not favor re-classification because this will reduce the current ratio from 1.5:1 to .8:1. This reduction in current ratio is detrimental to company prospects for securing a major loan.

Instructions

Answer the following questions:

  • Should the controller re-classify the notes? Give your reasons.
  • Does the treasurer's position pose an ethical dilemma for the controller? Explain your answer.

Ethics Case 2

The WGN Company has a bonus arrangement, which grants the financial vice president and other executives a $15,000 bonus if the net income exceeds the previous year's by $1,000,000. Noting that the current financial statements report an increase of $950,000 in the net income, Vice President Jack Brickhouse asks Louise Boudreau, the controller, to reduce the estimate of warranty expense to $60,000. The present estimate of warranty expense is $500,000 and is known by both Brickhouse and Boudreau to be a fairly "soft" amount.

Instructions

Answer the following questions:

  • Should Boudreau lower her estimate?
  • What ethical issue is at stake? Would anyone be harmed by the change in estimate?
  • Is Brickhouse acting ethically?

Ethics Case 3

Randolph Hundley, the controller of Shenandoah Furniture Company, and Todd, his assistant, are preparing the year-end financial statements. Todd wants to disclose the cost of available-for-sale securities as a parenthetical note on the balance sheet. Hundley concerned about the decline in market value compared the cost of these securities does not want to call attention to this decline. He wants to "bury" the cost information in a note to the financial statements.

Instructions

  • What ethical issue is posed by the choice between these two forms of disclosure?
  • Are the interests of different stakeholders in conflict in the choice between the two methods of accounting reports?
  • Which method would you choose and why?