Chat with AI
Business & Professional Ethics 6th Edition by Leonard Brooks
Edition 6ISBN: 9781133708087Business & Professional Ethics 6th Edition by Leonard Brooks
Edition 6ISBN: 9781133708087 Exercise 29
Larry Plant, the Chief Financial Officer of Castle Manufacturing Inc. was involved in a lengthy discussion with Joyce Tang of the company's auditing firm, Bennett Sange, at the conclusion of the audit fieldwork.
"Look Joyce, we just can't afford to show that much profit this year. If we do record the $1.5 million after-tax adjustment you propose, our profit will be 20 percent higher than we had two years ago and 5 percent higher than we reported last year. On the other hand, without the adjustment, we would be close to last year's level. We are just about to enter negotiations with our labor unions, and we have been complaining about our ability to compete. If we show that much profit improvement, they will ask for a huge raise in rates. Our company will become non-competitive due to higher labor rates than our offshore competition. Do you really want that to happen?"
"But Larry, you really earned the profit. You can't just ignore it!"
"No, I'm not suggesting that, Joyce. But virtually all of the goods making up the profit adjustment were in transit at our year end-so let's just record them as next year's sales and profits."
"But, Larry, they were all sold FOB your plant, so title passed to the buyer when they were shipped."
"I know that, Joyce, but that was an unusual move by our overzealous sales staff, who were trying to look good and get a high commission on year-end numbers. Anyway, the customer hadn't inspected them yet. Just this once, Joyce, let's put it into next year. It's not really a significant amount for our shareholders, but it will trigger a much bigger problem for them if the unions get a hold of the higher profit numbers. As you know, about 40 percent of our shares were willed to the United Charities Appeal here in town, and they could sure benefit by higher profits and dividends in the future. I bet the difference in their dividends could be up to $400,000 per year over the life of the next five-year contract."
What should Joyce do?
"Look Joyce, we just can't afford to show that much profit this year. If we do record the $1.5 million after-tax adjustment you propose, our profit will be 20 percent higher than we had two years ago and 5 percent higher than we reported last year. On the other hand, without the adjustment, we would be close to last year's level. We are just about to enter negotiations with our labor unions, and we have been complaining about our ability to compete. If we show that much profit improvement, they will ask for a huge raise in rates. Our company will become non-competitive due to higher labor rates than our offshore competition. Do you really want that to happen?"
"But Larry, you really earned the profit. You can't just ignore it!"
"No, I'm not suggesting that, Joyce. But virtually all of the goods making up the profit adjustment were in transit at our year end-so let's just record them as next year's sales and profits."
"But, Larry, they were all sold FOB your plant, so title passed to the buyer when they were shipped."
"I know that, Joyce, but that was an unusual move by our overzealous sales staff, who were trying to look good and get a high commission on year-end numbers. Anyway, the customer hadn't inspected them yet. Just this once, Joyce, let's put it into next year. It's not really a significant amount for our shareholders, but it will trigger a much bigger problem for them if the unions get a hold of the higher profit numbers. As you know, about 40 percent of our shares were willed to the United Charities Appeal here in town, and they could sure benefit by higher profits and dividends in the future. I bet the difference in their dividends could be up to $400,000 per year over the life of the next five-year contract."
What should Joyce do?
Explanation
Verified
Verified
In this case, J should not alter the fin...
Business & Professional Ethics 6th Edition by Leonard Brooks
Why don’t you like this exercise?
Other Minimum 8 character and maximum 255 character
Character 255
