Reference no: EM132980602

Question - ETHICS CASE ON REVENUE RECOGNITION - Gadget King Corporation manufactures personal computers, tablets and mobile phones. The company began operations in 2015and reported profits for the years 2015through 2018. Due primarily to increased competition and price slashing in the industry, 2019's income statement reported a loss of P15,000,000. Just before the end of the 2020 financial year, a memo from the company's chief financial officer to Hendrick Cruz, the company controller and Nathan Santos, the company director for finance, included the following comments:

If we don't do something about the large number of unsold computers, tablets and mobile phones already manufactured, our auditors will require us to write them off. The resulting loss for2020 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to Bilis Benta, Inc., in Quezon City.I know the company's president and he will accept the merchandise and acknowledge the shipment as purchase.We can record the sale in 2020 which will boost profits to an acceptable level. Then Bilis Benta will simply return the merchandise in 2021 after the financial statements have been issued.

Required - Discuss the ethical dilemma faced by Hendrick Cruz and Nathan Santos.