Chapter 5, Problem 5SDC

Ethical Decision Making: A Mini-Case

You are an assistant in the accounting department of Hasher Electronics, a small electronics retailer. Hasher has a loan that requires the company to maintain a minimum cash balance of $125,000, as reported on its year-end balance sheet. Although Hasher has struggled in recent years, as of yesterday it looked as though Hasher would be able to meet this requirement. The cash balance in Hasher’s general ledger was $130,000 and the company’s credit manager was expecting to receive a $30,000 electronic funds transfer that day on account from your biggest customer. Your department supervisor had been worried about meeting the loan requirement, so she had delayed making payments to Hasher’s suppliers for several days. But in anticipation of receiving the EFT, she decided yesterday to issue checks to suppliers totaling $15,000.

It is now the last day of the fiscal year and your supervisor approaches you with a problem. Your big customer had backed out at the last minute, indicating it had “some financial issues to sort out” before it can transfer money to Hasher. The supervisor says the only way Hasher can meet its loan requirement is to put the $15,000 back into the Cash account and pretend as if the supplier checks were not issued until after year-end. You questioned whether this would be ethical. Her reply was, “Well, we don’t really have a choice. Either we do this, or we violate the terms of the loan agreement and possibly be forced to repay the loan immediately. That could put us out of business. Think of all the people who would lose their jobs! Just make a journal entry today to increase Cash and Accounts Payable. Then tomorrow we can reduce Cash and Accounts Payable—probably before many of our suppliers even get the checks we have written to them.”

Required:

1. 1. Who might suffer in the short term if you go along with your supervisor’s request? What might happen in the future if you go along with her request this time? If you do not go along, who might suffer in the short term and what could be the long-term consequences?
2. 2. You want to be loyal to your supervisor but honest to others who rely on your work. As an accounting assistant, which of these concerns should be most important? Why?
3. 3. What alternative courses of action can you take? Which of these is “best” given the circumstances?