Chapter 21, Problem 21.7BYP

1.

To determine

Ethical issue

In this case, for P Company the net income has steady growth from the year 2013 through the year 2016, but surprisingly the ominous trend in cash flows, which is consistently lower than net income and is decreasing throughout. But the cash flow is abysmally low in the year 2016 which is $1.6 million against the net income of $38.5 million. On review B found out that there is laxity in the credit policy of the company, credit terms relaxed and payment period extended. The accounts receivable balance has been increased to very high level. Many employees including the controller and the president’s compensation arrangement were based on reported income.

To Explain: The perilous impact from the combination of events surmised by B.

2.

To determine

To Identify: The course of action to be taken by B.