Assignment: Ethics in Accounting Due Week 9 and worth 120 points Effective finan

Question

Assignment: Ethics in Accounting Due Week 9 and worth 120 points Effective financial reporting depends on sound ethical behavior. Financial scandals in accounting and the businesses world have resulted in legislation to ensure adequate disclosures and honesty and integrity in financial reporting. A sound economy is contingent on truthful and reliable financial reporting. Instructions: Read the following scenario. Answer the questions that follow. Your answers should result in a 2-3 page submission. Reference back to your text book for guidance on how to think through the scenario. Scenario: Imagine you are the assistant controller in charge of general ledger accounting at Linbarger Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly. At June 30, the cash balance is $80,000. You give this update to Lisa Infante, the financial vice president. Lisa is nervous and instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Lisa says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down, put us all out of our jobs!” Lisa continues, “I talked to Oconto Distributors (one of Linbarger’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!” Questions What is the accounting problem that the Linbarger Company faces? What are the ethical considerations in this case? Provide rationale for why these are ethical considerations. What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance? Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted. What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.

Explanation / Answer

1. What is the accounting problem that the Linbarger Company faces?

The accounting problem that the company would face is explained: As Lisa mentioned that the check for $150000 is sent yesterday by their customer, it's in mail is will be received by tomorrow. Now this means that the company has a short cash balance as on 30th June. If the company is to received a check from their customer ttomorrow means they will get it on 1st July. Now when this check is deposited in the bank on 1st July the bank statement would show the credit of $ 150000 on 1st July. So, now when the month end balance of June will be reported it will not reconcile with the Bank Statement as the check deposit in the bank was done on 1st July and not in June. If  Linbarger Company kept the cash receipt book open post 30th June also, the accounting problem would be on which date the company shows the receipt for the check, which will mismatch with the monthly bank statement.

2. What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.

Firstly, the cash receipts books should be closed on the last day of the month after EOD. The financial reports presented should be based on the actual transcations happened on that day. Just to comply with agreements and contract terms, presenting false figure on the month end reports is an unethical consideration. This may lead to misleading discloure of the financial reports and would hamper the integrity of the financial reporting.

3. What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?

The negative impact in not following Lisa Infante's instructions to wait one more day to post the balance would be that If the company don’t get their cash balance over $200,000, they'll default on the loan agreement. They could close down them, put them all out of their jobs.

4. What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance? Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.

The negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance is that the Linbarger Company would default the loan agreement. The insurance company could close down the Linbarger Company putting all their jobs at stake.

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