please let me know if I answered these questions correctly and explain why im co
ID: 2451716 • Letter: P
Question
please let me know if I answered these questions correctly and explain why im correct. And if im wrong please tell me how to improve my answere. Thank you
As its year-end approaches, it appears that Ortiz Corporation’s net income will increase 10% this year. The president of Ortiz Corporation, nervous that the stockholders might expect the company to sustain this 10% growth rate in net income in future years, suggests that the controller increase the allowance for doubtful accounts to 4% of receivables in order to lower this year’s net income. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate of growth for Ortiz Corporation in future years. The controller of Ortiz Corporation believes that the company’s yearly allowance for doubtful accounts should be 2% of receivables.
(a) Who are the stakeholders in this case? The stakeholders in this case are management, employees, customers and all the users of the financial instrument.
(b) Does the president's request pose an ethical dilemma for the controller? Why or why not? Assuming that the controller used a schedule based on the age of the accounts to reach his conclusion that 2% is what the doubtfuls should reflect, then the ethical dilemna is adjusting numbers to create the illusion of a more sustainable rate of growth. It's the responsibility of the controller to make sure that the numbers are as accurate an estimation as possible as possible.
(c) Should the controller be concerned with Ortiz Corporation’s growth rate in estimating the allowance? Why or why not? The controller should not be concerned with the corporation's growth rate for that year when he is estimating the allowance for doubtful accounts. This number should be based on money already tied to accounts. It has nothing to do with the growth rate. The growth rate may have brought in more accounts but the numbers are separate from one another. The controller should stick to the 2% of receivables that he/she originally figured.
Explanation / Answer
a) The stakeholders are management and the stock holders. Management is internal stakeholder and stockholders are external stakeholder
b)Yes, it possess ethical dilema . As per the policy he should provide allowance for doubtful accounts as 2% and not 4%. As he has to proceed as per external stakeholders and not internal stakeholders.
c)The explanation give by you is pin point.
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