Shake corporation has several current notes receivable on

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Reference no: EM13484130

1.Shake Corporation has several current notes receivable on its year-end balance sheet. While collection seems certain, it may be delayed beyond one year. Because of this, the controller wants to re-classify these notes as non-current. Shake's treasurer also thinks that collection will be delayed but does not favor re-classification because this will reduce the current ratio from 1.5:1 to .8:1. This reduction in current ratio is detrimental to company prospects for securing a major loan.

a.Should the controller re-classify the notes? Give your reasons.

b.Does the treasurer's position pose an ethical dilemma for the controller? Explain your answer.

2.The Mille Company has a bonus arrangement, which grants the financial vice president and other executives a $15,000 bonus if the net income exceeds the previous year's by $1,000,000. Noting that the current financial statements report an increase of $950,000 in the net income, Vice President John Smelle asks Joanne Smith, the controller, to reduce the estimate of warranty expense to $60,000. The present estimate of warranty expense is $500,000 and is known by both Smelle and Smith to be a fairly "soft" amount.

a.Should Smith lower her estimate?

b.What ethical issue is at stake? Would anyone be harmed by the change in estimate?

c.Is Smelle acting ethically?

Reference no: EM13484130

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