Exercise 1-3 (Essay) Sam Cresco, president of Cresco Company, has instructed Sha
ID: 2571005 • Letter: E
Question
Exercise 1-3 (Essay) Sam Cresco, president of Cresco Company, has instructed Sharon Gross, the head of the accounting department for Cresco Company, to report the company’s land in the company’s accounting reports at its fair value of $170,000 instead of its cost of $100,000. Cresco says, “Showing the land at $170,000 will make our company look like a better investment when we try to attract new investors next month.”Explain the ethical situation involved for Sharon Gross, identifying the stakeholders and the alternatives.
Exercise 1-3 (Essay) Sam Cresco, president of Cresco Company, has instructed Sharon Gross, the head of the accounting department for Cresco Company, to report the company’s land in the company’s accounting reports at its fair value of $170,000 instead of its cost of $100,000. Cresco says, “Showing the land at $170,000 will make our company look like a better investment when we try to attract new investors next month.”
Explain the ethical situation involved for Sharon Gross, identifying the stakeholders and the alternatives.
Exercise 1-3 (Essay) Sam Cresco, president of Cresco Company, has instructed Sharon Gross, the head of the accounting department for Cresco Company, to report the company’s land in the company’s accounting reports at its fair value of $170,000 instead of its cost of $100,000. Cresco says, “Showing the land at $170,000 will make our company look like a better investment when we try to attract new investors next month.”
Explain the ethical situation involved for Sharon Gross, identifying the stakeholders and the alternatives.
Explanation / Answer
As per GAAP accounting tangible assets are valued at cost or market value whichever is less.Therefor Land should be valued at cost or fair value whichever is less.In this case $ 100000 would be correct figure.
Inorder to put up Land at $ 170000 Sam would need to show an increase of $ 70000 profit to the business.The ethical situation would be to follow GAAP.However in Notes to accounts management can make a reference of rise in market value so as to give the stakeholders an idea about the current value of Land.
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