NEW Competency. 2.2 Wintz Publishing House produces consumer magazines. The Hous
ID: 2478295 • Letter: N
Question
NEW
Competency. 2.2 Wintz Publishing House produces consumer magazines. The House and Home Division, which sells home-improvement and home-decorating magazines, has seen a 20% reduction in operating income over the past 9 months, primarily due to an economic recession and a depressed consumer housing market. The division’s controller, Happy Franklin, has felt pressure from the CFO to improve her division’s operating results by the end of the year. Franklin is considering the following options for improving the division’s performance by year-end:a.Cancelling two of the division’s least profitable magazines, resulting in the layoff of 25 employees.b.Selling the new printing equipment that was purchased in January and replacing it with discarded equipment from one of the company’s other divisions. The previously discarded equipment no longer meets current safety standards.c.Recognizing unearned subscription revenue (cash received in advance for magazines that will be delivered in the future) as revenue when cash is received in the current month (just before fiscal year-end) instead of showing it as a liability. d.Reducing the division’s Allowance for Bad Debt Expense. This transaction alone would increase operating income by 5%.e.Recognizing advertising revenues that relate to January in DecemberWhich of the forgoing “year-end” actions are clearly in conflict with the IMA Statement of Ethical Standards and should be viewed as unacceptable because of their potential harm to investors?(2 point)
Options a, c, and d
Options a, d, and e
Options c, d, and e
Options b, e, and d
Explanation / Answer
Of the “year-end” actions, following are clearly in conflict with the IMA Statement of Ethical Standards and should be viewed as unacceptable because of their potential harm to investors:
Options (a), (d), and (e), which are
a. Cancelling two of the division’s least profitable magazines, resulting in the layoff of 25 employees.
d. Reducing the division’s Allowance for Bad Debt Expense. This transaction alone would increase operating income by 5%.
e. Recognizing advertising revenues that relate to January in December
=> This is because in all actions in Option a , d and e, the return/income of investors are been affected by these actions , so these are unacceptable and clearly in conflict with the IMA Statement of Ethical Standards.
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