Concept explainers
Ethical Decision Making: A Mini-Case
Assume you work as an assistant accountant in the head office of a DVD movie kiosk business, similar to Coinstar, Inc. With the increasing popularity of online movie rental operations, your company has struggled to meet its earnings targets for the year. It is important for the company to meet its earnings targets this year because the company is renegotiating a bank loan next month, and the terms of that loan are likely to depend on the company’s reported financial success. Also, the company plans to issue more stock to the public in the upcoming year, to obtain funds for establishing its own presence in the online movie rental business. The chief financial officer (CFO) has approached you with a solution to the earnings dilemma. She proposes that the
Required:
Discuss the CFO’s proposed solution. In your discussion, consider the following questions. Will the change in depreciation affect net income in the current year in the way that the CFO described?
How will it affect net income in the following year? Is the CFO correct when she claims that the change in estimated depreciation is allowed by GAAP? Who relies on the video company’s financial statements when making decisions? Why might their decisions be affected by the CFO’s proposed solution? Is it possible that their decisions would not be affected? What should you do?
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Fundamentals of Financial Accounting
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- Drag the tiles to the correct boxes to complete the pairs. Match the characteristics with their relevant accounting principles. materiality prudence consistency objectivity Terry hopes to earn a profit of $5,000 next month. However, he doesn't record it in the book of accounts. Investors view financial statements as a reliable document on which they can base investment decisions. The accountant uses the same method of calculating profit. A company can back every purchase with a receipt. Reset Next ©2020 Edmentum. All rights reserved. P Type here to searcharrow_forwardYou are a accountant, working for a small firm of accountants and report to the Accounts’ Manager. One of the trainees recently joined your company, and the Accounts’ Director has asked her to provide information on her previous company’s client base. This information would then be used to attract new clients and encourage them to change their accountants and move to your firm. This will increase the revenue of the firm. What advise will you give the trainees? Inform the trainee that she should keep confidentiality and should not reveal any information about her previous clients. Advise the trainee to contact her old employer and obtain permission to use the information on their client base. Advise the trainee that she should be loyal towards her new employer and should therefore provide the information to the Accounts’ Director as requested. Inform the trainee that revealing such information is illegal, and that it is a crime under the regulationsarrow_forwardACME Company sells computer components and plans on borrowing some money to expand. After reading a lot about earnings management, Bill, the owner of ACME, has decided he should try to accelerate some sales to improve his financial statement ratios. He has called his best customers and asked them to make their usual January purchases by December 31. Bill told the customers he would allow them, until the end of February, to pay for the purchases, just as if they had made their purchases in January. Explain if you think there are ethical implications of Bill’s actions. Which ratios will be affected, and how, by accelerating these sales? Please do not copy and paste from other websites.arrow_forward
- select a “start-up” company in an industry of your choice and provide a brief summary description of the start-up company you chose and the goods or services it provides. 1. As a start-up company, identify three Credit Risks the company currently faces today or could face in the future. Explain in detail why these risks are a threat to the company. 2. What advice would you give to the CEO of the company to prevent or minimize these credit risks?arrow_forwardSuppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank. 8 00-45-49 Costs Product Cost / Period Cost 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory. 3 lubricants used for machine maintenance Salaries of personnel who work in the finished goods warehouse 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising…arrow_forwardJohn Drake, a partner at Drake and Buetz, is meeting with a potential new client. The client recently saw the firm's TV advertisement claiming that the firm was "the premier accounting firm in western Canada." The client requires a review engagement report with its financial statements to obtain a bank loan. John advises that his fee will be 10 percent of any bank loan granted. What principles and/or rules of professional conduct apply to this scenario? There is a violation with regards to advertising. Professional competence is lacking because of the advertising of the firm as the "premier" accounting firm. There is no violation of any ethical principles or rules of professional conduct. There is a violation of the code of professional conduct regarding fees and pricing. OA bank always requires an audit, a review engagement is not permitted. Fees are to be based on an estimate of work performed, not on percentage of a bank loan.arrow_forward
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