hical Issue philosophy. Each plant combines wood chips with chemical adhesives to produce parti- board division. High Mountain Lumber has adopted a just-in-time management Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber's particle cle board to order, and all product is sold as soon as it is completed. Laura Green is High divisions send Green their production and cost information. While reviewing the num- Mountain Lumber's regional controller. All of High Mountain Lumber's plants and Ders of the two particle board plants, she is surprised to find that both plants estimate heir ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their ivision would meet its profit goal and that both he and Pines would make their bonus which is based on division profit), they agreed to inflate the percentage completion. Opez explains, "Determining the percent complete always requires judgment. Whatever percent complete, we'll finish the Work-in-Process Inventory first thing next year." =quirements How would inflating the percentage completion of ending Work-in-Process Inventory help Pines and Lopez get their bonus? The particle board division is the largest of High Mountain Lumber's divisions. f Green does not correct the percentage completion of this year's ending Work- n-Process Inventory, how will the misstatement affect High Mountain Lumber's inancial statements? 2120) valuate Lopez's justification, including the effect, if any, on next year's financial atements. dress the following: What is the ethical issue? What are the options? What are potential consequences? What should Green do?
hical Issue philosophy. Each plant combines wood chips with chemical adhesives to produce parti- board division. High Mountain Lumber has adopted a just-in-time management Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber's particle cle board to order, and all product is sold as soon as it is completed. Laura Green is High divisions send Green their production and cost information. While reviewing the num- Mountain Lumber's regional controller. All of High Mountain Lumber's plants and Ders of the two particle board plants, she is surprised to find that both plants estimate heir ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their ivision would meet its profit goal and that both he and Pines would make their bonus which is based on division profit), they agreed to inflate the percentage completion. Opez explains, "Determining the percent complete always requires judgment. Whatever percent complete, we'll finish the Work-in-Process Inventory first thing next year." =quirements How would inflating the percentage completion of ending Work-in-Process Inventory help Pines and Lopez get their bonus? The particle board division is the largest of High Mountain Lumber's divisions. f Green does not correct the percentage completion of this year's ending Work- n-Process Inventory, how will the misstatement affect High Mountain Lumber's inancial statements? 2120) valuate Lopez's justification, including the effect, if any, on next year's financial atements. dress the following: What is the ethical issue? What are the options? What are potential consequences? What should Green do?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:> Ethical Issue 18-1
parti-
board division. High Mountain Lumber has adopted a just-in-time management
Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber's particle
philosophy. Each plant combines wood chips with chemical adhesives to produce p
divisions send Green their production and cost information. While reviewing the num-
Mountain Lumber's regional controller. All of High Mountain Lumber's plants and
cle board to order, and all product is sold as soon as it is completed. Laura Green is High
I to find that both plants estimate
bers of the two particle board plants, she is surprised
their ending Work-in-Process Inventories at 75% complete, which is higher than usual.
Green calls Lopez, whom she has known for some time. He admits that to ensure their
division would meet its profit goal and that both he and Pines would make their bonus
(which is based on division profit), they agreed to inflate the percentage completion.
Lopez explains, "Determining the percent complete always requires judgment. Whatever
the percent complete, we'll finish the Work-in-Process Inventory first thing next year."
Requirements
1. How would inflating the percentage completion of ending Work-in-Process
Inventory help Pines and Lopez get their bonus?
2. The particle board division is the largest of High Mountain Lumber's divisions.
If Green does not correct the percentage completion of this year's ending Work-
in-Process Inventory, how will the misstatement affect High Mountain Lumber's
financial statements?
3. Evaluate Lopez's justification, including the effect, if any, on next year's financial
statements.
4. Address the following: What is the ethical issue? What are the options? What are
the potential consequences? What should Green do?
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