Chapter 11, Problem 1EIC

Ethical Issues

Georgetown Motors is having a bad year. Net income is only $37,000 to date Also, two important overseas customers are falling behind on their payments to Georgetown, and Georgetown’s accounts receivable are ballooning. The company desperately needs a loan The Georgetown board of directors is considering ways to put the best face on the company’s financial statements Georgetown’s bank closely examines the company’s cash flow from operations. Donna McDowell. Georgetown’s controller suggests reclassifying as long-term the receivables from the slow-paying clients She explains to the board that removing the $80,000 rise in accounts receivable from current assets will increase net cash provided by operations. This approach may help Georgetown get the loan

Requirements

1. 1. Using only the amounts given, calculate Georgetown’s net cash provided by operations both without and with the reclassification of the receivables Which reporting makes the company look better?
2. 2. Identify the ethical issue(s).
3. 3. Who are the stakeholders?
4. 4. 4 Analyze the issue from the (a) economic. (b) legal, and (c) ethical standpoints What is the potential impact on all stakeholders?
5. 5. what should the board do?
6. 6. Under what conditions would reclassifying the receivables be considered ethical?