Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 21, Problem 10C
Ethics and
You are the accountant for Nello Company, which manufactures specialty equipment. Nello has been in financial difficulty, so its suppliers require purchases to he paid in cash. Furthermore, Nello has long-term debt with a debt covenant that requires it to maintain a 1:1 acid-test (quick) ratio. Nello’s employees work a 5-day week, Monday through Friday.
On Wednesday morning during the last week of the current year, Sam (the production supervisor) comes to you and says, “I don’t understand it. We have this large special order from a customer that must be delivered at the end of the first week in January. Once we get the raw materials, it is going to take 5 solid days of work without overtime to produce the order. If Bob (the president) would let me order the raw materials this morning, we could have them by late today. This would give us 2 days this week and the 4 days after New Year’s Day (Monday) of next week to complete the order without incurring overtime costs. But Bob says we must wait until next Tuesday to order the materials. This means we will have to work double time that Wednesday through Friday to finish the order. That overtime cost is going to really increase next year’s factory salary expense, so our profit and operating cash flows from that order will be very low. Please talk to him.”
When you approach Bob about buying the raw materials this morning, he says, “If we purchase those materials today, we will have to write a check. And that means our cash flow from operating activities for this year will be much lower, which our shareholders won’t like. Furthermore, our quick ratio will go down from 1.01:1 to 0.90:1, so our creditors may be upset. I know our profit and operating cash flows for next year will be lower if we delay the purchase, but that seems to be the best decision. Don’t you agree?”
Required:
From financial reporting and ethical perspectives, how would you respond to Bob?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Each year Susan Riley, president of Bargon Construction, Inc., takes a three-week vacation to Hawaii and signs several checks to pay major bills during the period in which she is absent. Riley’s vacation often occurs near the end of Bargon’s fiscal reporting period because it is a slack time for the construction business. Jack Morgan, head bookkeeper for the company, uses this practice to his advantage. He makes out a check to himself for the amount of a large vendor’s invoice and records it as a payment to the vendor for the purchase of supplies. He holds the check for several weeks to make sure the auditors will not examine the canceled check. Shortly after the first of the year, Morgan resubmits the invoice to Riley for payment approval and records the check in the cash disbursements journal. At that point, he marks the invoice as paid and files it with all other paid invoices. Morgan has been following this practice successfully for several years and feels confident that he has…
Sharon Els sells security systems for Guardsman Security Co. Els has a monthly sales quota of $40,000. If Els exceeds this quota, she is awarded a bonus. In measuring the quota, a sale is credited to the salesperson when a customer signs a contract for installation of a security system. Through the 25th of the current month, Els has sold $30,000 in security systems.
Vortex Co., a business rumored to be on the verge of bankruptcy, contacted Els on the 26th of the month about having a security system installed. Els estimates that the current contract would yield about $14,000 worth of business for Guardsman Security Co. In addition, this contract would be large enough to put Els "over the top" for a bonus in the current month. However, Els in concerned that Vortex Co. will not be able to make the contract payment after the security system is installed. In fact, Els has heard rumors that a competing security services company refused to install a system for Vortex Co. because of these…
Bev Wynn, vice president of operations for Dillon County Bank, has instructed the bank’s computer programmer to use a 365-day year to compute interest on depository accounts (liabilities). Bev also instructed the programmer to use a 360-day year to compute interest on loans (assets).Discuss whether Bev is behaving in a professional manner.
Chapter 21 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 21 - What information does the statement of cash flows...Ch. 21 - Briefly describe the three types of activities a...Ch. 21 - Thompson Company sold a piece of equipment that...Ch. 21 - Give two examples of a companys (a) cash inflows...Ch. 21 - Prob. 5GICh. 21 - Prob. 6GICh. 21 - Prob. 7GICh. 21 - Prob. 8GICh. 21 - Prob. 9GICh. 21 - List the three operating cash inflows that a...
Ch. 21 - Prob. 11GICh. 21 - Prob. 12GICh. 21 - Prob. 13GICh. 21 - Dunn Company recognized a 5,000 unrealized holding...Ch. 21 - Jordan Company recognized a 5,000 unrealized...Ch. 21 - Indicate how a company computes the amount of...Ch. 21 - Prob. 17GICh. 21 - Prob. 18GICh. 21 - Prob. 19GICh. 21 - Which of the following would be considered a cash...Ch. 21 - In a statement of cash flows (indirect method),...Ch. 21 - The net cash provided by operating activities in...Ch. 21 - The retirement of long-term debt by the issuance...Ch. 21 - Prob. 5MCCh. 21 - Selected information from Brook Corporations...Ch. 21 - Prob. 7MCCh. 21 - Prob. 8MCCh. 21 - Which of the following need not be disclosed in a...Ch. 21 - The following information was taken from Oregon...Ch. 21 - Prob. 1RECh. 21 - Prob. 2RECh. 21 - Given the following information, convert Cardinal...Ch. 21 - Given the following information, convert Robin...Ch. 21 - In the current year, Harrisburg Corporation had...Ch. 21 - Tifton Co. had the following cash transactions...Ch. 21 - Tifton Co. had the following cash transactions...Ch. 21 - Trenton Corporation has the following items....Ch. 21 - Prob. 9RECh. 21 - In the current year, Harrisburg Corporation...Ch. 21 - Providence Company sold equipment for 25,000 cash....Ch. 21 - Annapolis Corporation paid 270,000 to retire bonds...Ch. 21 - Given the following information, compute Lemon...Ch. 21 - Prob. 14RECh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Visual Inspection Noble Companys accounting...Ch. 21 - Prob. 4ECh. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Prob. 8ECh. 21 - Partially Completed Spreadsheet Hanks Company has...Ch. 21 - Spreadsheet The following 2019 information is...Ch. 21 - Spreadsheet and Statement The following 2019...Ch. 21 - Fixed Asset Transactions The following is an...Ch. 21 - Retirement of Debt Moore Company is preparing its...Ch. 21 - Interest and Income Taxes Staggs Company has...Ch. 21 - Investments On October 4, 2019, Collins Company...Ch. 21 - Statement of Cash Flows The following is a list of...Ch. 21 - Investing Activities and Depreciable Assets...Ch. 21 - Spreadsheet and Statement The following 2019...Ch. 21 - (Appendix 21.1) Operating Cash Flows The following...Ch. 21 - (Appendix 21.1) Statement of Cash Flows The...Ch. 21 - (Appendix 21.1) Visual Inspection The following...Ch. 21 - Prob. 22ECh. 21 - Classification of Cash Flows A company's statement...Ch. 21 - Prob. 2PCh. 21 - Statement of Cash Flows The following is a list of...Ch. 21 - Statement of Cash Flows The following is a list of...Ch. 21 - Partially Completed Spreadsheet The following...Ch. 21 - Spreadsheet and Statement of Cash Flows The...Ch. 21 - Prob. 7PCh. 21 - Spreadsheet from Trial Balance Heinz Companys post...Ch. 21 - Prepare Ending Balance Sheet On December 31, 2019,...Ch. 21 - Infrequent Transactions The following transactions...Ch. 21 - Prob. 11PCh. 21 - Comprehensive Angel Company has prepared its...Ch. 21 - Comprehensive The following are Farrell...Ch. 21 - (Appendix 21.1) Operating Cash Flows Refer to the...Ch. 21 - (Appendix 21.1) Statement of Cash Flows The...Ch. 21 - Comprehensive The following are Farrell...Ch. 21 - (Appendix 21.1) Comprehensive The following are...Ch. 21 - Prob. 18PCh. 21 - Financial Statement Interrelationships Prepare an...Ch. 21 - Statement of Cash Flows A friend of yours is...Ch. 21 - Prob. 3CCh. 21 - Operating, Investing, and Financing Activities The...Ch. 21 - Prob. 5CCh. 21 - Spreadsheet Method The spreadsheet method is...Ch. 21 - Prob. 7CCh. 21 - Inflows and Outflows Alfred Engineering Company is...Ch. 21 - Ethics and Cash Flows You are the accountant for...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Between the end of one month and the 15th day of the next month, the balance in the employers business bank account has been getting smaller and smaller. An employee prepares the next payroll and correctly computes the necessary withholding taxes. The employer is supposed to pay accumulated employment taxes on the 15th of the next month. Payday is the last day of the month. However, the employer has used the funds withheld from employees to pay some of the businesss bills. He hopes that enough of the customers who owe him money will pay their outstanding debts. If his assumption is true, the checking account will have enough in it to pay the federal deposit on the 15th of the month. Is the employer acting ethically? After all, he says he intends to have enough money in the account for the deposit. Explain your answer.arrow_forwardEthics in Action Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks salary. On November 15, the firm's management team announced that there would be no annual bonus this year. Because of the firm's long history of giving a year end bonus. Tonya and her coworkers had come to expect the bonus and believed that Cabbally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedy's policy is to pay overtime at 150% of striaght time. Tonya's Supervisor was surprised to see overtime being reported, there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the "honor system" in…arrow_forwardCPA Jetter is a self-employed accountant and is required to take a week of continuing accounting and ethics education every year to maintain his license. This year he paid $950 in course fees for his continuing accounting and ethics education in a different city. He also paid $450 for airfare and a hotel room and paid $356 for meals. He also took a realtor seminar which cost $325 during the stay. What is the total amount he can deduct on his Schedule C related to these expenses? Explain your answerarrow_forward
- Provide the following independent journal entries: a. July 31, 2019. We had $1,000,000 of credit sales in July. We estimate that our bad debt expense will be 1% of credit sales. b. Aug. 15, 2019. We have an account receivable from Frank Farmworker for $500. On Aug. 15 we decide that we will not collect this account, so need to write it off. On Sept. 5 we get a check from Frank in the mail. c. Dec. 31, 2019. Allowance for Bad Debts currently has a credit balance of $7,200. We perform an aging of accounts receivable, and determine that the Allowance should have a balance of $10,100. d. Dec. 31, 2020. We age our accounts receivable: Age of accounts . Days: 1-30 31-60 61-9091+Total Accounts receivable$85,000$40,000$10,000$2,000$137,000 Estimate % uncollectible 1% 5% 20% 60% What balance should the…arrow_forwardOn the last day of the fiscal year, a co-worker asks you to cut a check for $2,000 as a miscellaneous expense for supplies in order to completea project for a VIP customer today. You notice the invoice looks a little different from other invoices that are usually processed. You know that by preparing the closing entries tomorrow, the miscellaneous expense will be set to zero for the beginning of the year. Should you write this check today and record the expense or write the check tomorrow? How would the company be affected if the check is written and the invoice ends up being erroneous?arrow_forwardAron Larson is a customer of Bank Enterprises. Mr. Larson took out a loan in the amount of $120,000 on August 1. On December 31, Bank Enterprises determines the loan to be uncollectible. Larson had not paid anything toward the balance due on account. What is the journal entry recording the bad debt write-off?arrow_forward
- Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2019), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. The accounts receivable from customers at the end of the year are 120,000. You note that the accounts receivable at the beginning of the year were 190,000. The cash sales included 30,000 of prepayments for services to be provided over the period January 1, 2019, through December 31, 2021. a. Compute the companys accrual basis gross income for 2019. b. Would you recommend that Blue use the cash method or the accrual method? Why? c. The company does not maintain an allowance for uncollectible accounts. Would you recommend that such an allowance be established for tax purposes? Explain.arrow_forwardJudy Smith owed the Flower Company $3,200 on account by February 25. After several attempts to the collect the money that was owed, Flower Company wrote off Judy's account as uncollectible on August 31. On December 15 Flower Company received a check from Judy Smith for the full $3,200 that she had owed the company. The company's fiscal year ended on December 31. Which of the following journal entries is recorded to reinstate the account when using the direct write-off method? a.Debit Accounts Receivable $3,200 and credit Uncollectible Accounts Recovered $3,200 b.Debit Bad Debt Expense $3,200 and credit Accounts Receivable $3,200 c.Debit Accounts Receivable $3,200 and credit Bad Debt Expense $3,200 d.Debit Allowance for Doubtful Accounts $3,200 and credit Bad Debt Expense $3,200arrow_forwardFlo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixture additions. Choi’s banker requires her to submit semiannual financial statements so he can monitor the financial health of her business. He has warned her that if profit margins erode, he might raise the interest rate on the borrowed funds to reflect the increased loan risk from the bank’s point of view. Choi knows profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additions are considered to be in use on the first day of the following quarter. (The previous rule assumed assets are in use on the first day of the month nearest to the purchase date.) Discuss the following: Identify decisions that managers like Choi must make in applying depreciation methods. Is Choi’s rule an…arrow_forward
- Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixture additions. Choi’s banker requires her to submit semiannual financial statements so he can monitor the financial health of her business. He has warned her that if profit margins erode, he might raise the interest rate on the borrowed funds to reflect the increased loan risk from the bank’s point of view. Choi knows profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additions are considered to be in use on the first day of the following month. (The previous rule assumed assets are in use on the first day of the month nearest to the purchase date.) Required 1. Identify decisions that managers like Choi must make in applying depreciation methods. 2. Is Choi’s rule an ethical…arrow_forwardNova Corporation hired a new product manager and agreed to provide her a $31,000 relocation loan on a six-month, 6 percent note. The company loans the money on January 1. The new employee pays Nova the interest owed on the maturity date. The new employee pays Nova the full principal owed on the maturity date. Prepare journal entries to record the above transactions for Nova Corporation. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.)arrow_forwardColleen Fernandez, president of Rhino Enterprises, applied for a $175,000 loan from First Federal Bank. The bank requested financial statements from Rhino Enterprises as a basis for granting the loan. Colleen has told her accountant to provide the bank with a balance sheet. Colleen has decided to omit the other financial statements because there was a net loss during the past year. Given this scenario, share your thoughts on the following questions. Is Colleen behaving in a professional manner by omitting some of the financial statements? Why or Why not What impact could this omission have on the business or the bank, which is loaning the money?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
College Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage Learning
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781305084087
Author:Cathy J. Scott
Publisher:Cengage Learning
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT
The KEY to Understanding Financial Statements; Author: Accounting Stuff;https://www.youtube.com/watch?v=_F6a0ddbjtI;License: Standard Youtube License