Ethical Issue: Moss Exports is having a bad year. Net Income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss's Accounts Receivable are ballooning (these two customers owe Moss $80,000 combined). The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company's financial statements. Moss's bank closely examines cash flow from operating activities. Daniel Peavey, Moss's Controller, suggests reclassifying the receivables from the two overseas customers as long-term assets. He explains to the Board that removing the $80,000 increase in Accounts Receivable from current assets will increase the net cash provided by operations.This approach may help get Moss the loan.
Ethical Issue: Moss Exports is having a bad year. Net Income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss's Accounts Receivable are ballooning (these two customers owe Moss $80,000 combined). The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company's financial statements. Moss's bank closely examines cash flow from operating activities. Daniel Peavey, Moss's Controller, suggests reclassifying the receivables from the two overseas customers as long-term assets. He explains to the Board that removing the $80,000 increase in Accounts Receivable from current assets will increase the net cash provided by operations.This approach may help get Moss the loan.
1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables.
Which reporting makes Moss look better?
In showing your math, please label all of your numbers.
2. There are two questions in this part:
a. Under what condition would the reclassification of the receivables be ethical?
b. Under what condition would the reclassification of the receivables be unethical?
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