FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
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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