When Synthia went overseas for three months, she left her financial affairs and her share portfolio with Michael, her accountant. She gave him clear instructions to sell her 5000 BHP shares if they rose to a specific price. Michael forgot to watch the stock market each day and missed seeing that the shares had reached Synthia’s specified price. Michael sold the shares as soon as he remembered what he had been asked to do. However, the price has dropped by then, and Synthia lost the $8000 profit she could have made if Michael had done as he was told. Explain whether Synthia can obtain compensation from Michael under their principal-agent relationship.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Question 1

When Synthia went overseas for three months, she left her financial affairs and her share portfolio with Michael, her accountant. She gave him clear instructions to sell her 5000 BHP shares if they rose to a specific price. Michael forgot to watch the stock market each day and missed seeing that the shares had reached Synthia’s specified price. Michael sold the shares as soon as he remembered what he had been asked to do. However, the price has dropped by then, and Synthia lost the $8000 profit she could have made if Michael had done as he was told. Explain whether Synthia can obtain compensation from Michael under their principal-agent relationship.

Question 2
Rheda is an Arabic-speaking Australian. Two months ago, he became an agent for the Banjo College (BC) and went to Dubai, in the Middle East, to sign up students for the college. BC agreed to pay Rheda a fee of $2500 plus expenses and, if he met his quota of 50 students, to pay $300 for every new student in excess of that figure. Rheda incurred expenses of $1000 and recruited 65 students. During his stay, he also recruited five students for the rival Les Academy (LA) for which he was paid $1800. Rheda did not disclose this payment to BC. Advise BC of its remedies.
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