Ethics AP6-5 Horizon Corporation manufactures personal computers. The company be

Question

Ethics AP6-5 Horizon Corporation manufactures personal computers. The company began operations in 2009 and reported profits for the years 2009 through 2016. Due primarily to increased competition and price slashing in the industry, 2017s income statement reported a loss of $20 million. Just before the end of the 2018 fiscal year, a memo from the company's chief financial officer to Jim Fielding, the company controller, included the following comments If we don't do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write down. The rosulting loss for 2018 will cause a violation of our debt covenants and force the company into bankruptcy.I suggest that you ship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's president, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2018 whigh will boost our loss to a profit. Then J.B. Sales will simply return the inventory in 2019 after the financial statements have been issued. Required: Discuss the ethical dilemma faced by Jim Fielding. What is the issue? Who are the parties involved? What factors should Jim consider in making his decision?

Explanation / Answer

The ethical dilemma faced by Jim Fielding is his superior asking him to use incorrect means to report a profit. On one hand, the company will go into bankruptcy if profits are not reported for 2018, however, on the other hand windowdressing the financial statements is an offence.

The parties involved are Jim, the CFO and the users of the financial statements in general.

While making his decision , Jim should consider the following factors:

- He should consider the long term financial health of the company rather than short term non sustainable profit.

-He should tell the CFO about the consequences of inflating the profits of the company in a wrongful manner.

-He should also inform the CFO about the tax implications of reporting a profit when in reality a loss exists. Tax will have to be paid which will further deplete the company's resources.

-The auditor's might unearth this manipulation and this might lead to a loss of the company's reputation.

If the CFO still insists on sending the inventory to J.B. Sales, Jim should look for opportunities outside the organization as being a part of this financial fraud will jeopardize his career.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.