What is the ethical issue in this situation? 2. Who are the stakeholders? What are the possible consequences to each? 3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, (c) ethical. 4. What would you do? How would you justify your decision?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Strasburg Loan Company is in the consumer loan business. Strasburg borrows from
banks and loans out the money at higher interest rates. Strasburg’s bank requires Strasburg
to submit quarterly financial statements to keep its line of credit. Strasburg’s main asset is
Notes Receivable. Therefore, Uncollectible-Account Expense and Allowance for Uncollectible
Accounts are important accounts for the company.
Raquel Lanser, the company’s owner, prefers that net income reflect a steady increase in
a smooth pattern, rather than an increase in some periods and a decrease in other periods. To
report smoothly increasing net income, Lanser underestimates uncollectible-account expense in
some periods. In other periods, Lanser overestimates the expense. She reasons that the income
overstatements roughly offset the income understatements over time.
Requirements
1. What is the ethical issue in this situation?
2. Who are the stakeholders? What are the possible consequences to each?
3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, (c) ethical.
4. What would you do? How would you justify your decision?
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