Was there anything unethical about the controllers actions

Assignment Help Accounting Basics

Reference no: EM133474346

Discussion Post

Pendleton Automotive Corp. is a medium-sized wholesaler of automotive parts. It has 10 stockholders who have been paid a total of $1 million in cash dividends for 8 consecutive years. The board's policy requires that, for this dividend to be declared, net cash provided by operating activities as reported in Pendleton Automotive's current year's statement of cash flows must exceed $1 million. President and CEO Hans Pfizer's job is secure so long as he produces annual operating cash flows to support the usual dividend.

At the end of the current year, controller Kurt Nolte presents president Hans Pfizer with some disappointing news: The net cash provided by operating activities is calculated by the indirect method to be only $970,000. The president says to Kurt, "We must get that amount above $1 million. Isn't there some way to increase operating cash flow by another $30,000?" Kurt answers, "These figures were prepared by my assistant. I'll go back to my office and see what I can do." The president replies, "I know you won't let me down, Kurt."

Upon close scrutiny of the statement of cash flows, Kurt concludes that he can get the operating cash flows above $1 million by reclassifying the proceeds from the $60,000, 2-year note payable listed in the financing activities section as "Proceeds from bank loan-$60,000." He will report the note instead as "Increase in payables-$60,000" and treat it as an adjustment to net income in the operating activities section. He returns to the president, saying, "You can tell the board to declare their usual dividend. Our net cash flow provided by operating activities is $1,030,000." "Good man, Kurt! I knew I could count on you," exults the president.

Task

Question 1. Who are the stakeholders in this situation?
Question 2. Was there anything unethical about the president's actions? Was there anything unethical about the controller's actions?
Question 3. Are the board members or anyone else likely to discover the misclassification?

Reference no: EM133474346

Questions Cloud

Explain why a firms strategy needs to pass ethical scrutiny : Explain why a firm's strategy needs to pass ethical scrutiny. What is an example of an unethical strategy? Explain your response.

What steps do you think police administrators : What steps do you think police administrators can take to be sure the people who are applying for law enforcement positions are the best and the right people

Select what you would propose to be best statistical test : Select what you would propose to be the best statistical test to address that problem and provide an explanation as to why you believe that would be best.

Intergenerational trauma in criminal justice system : Explain why issue of intergenerational trauma in the criminal justice system is important and the impact this has to Aboriginal people

Was there anything unethical about the controllers actions : Was there anything unethical about the president's actions? Was there anything unethical about the controller's actions?

What are some examples of transactions that may have started : What are some examples of transactions that may have started during the period but have not finished by the end of the period?

Differences of victimology and criminology characteristics : Summarize the similarities and differences of victimology and criminology characteristics. Summarize the responsibilities of a victim advocate.

Define ethical issue relate to information technology and is : Define ethical issues related to information technology and IS. Identify major types of controls that organizations can use to protect information resources.

Discuss the social ecological model : In your own words, what was the main message/thesis of the podcast? What were two things that you learned, or that you found interesting during this podcast?

User Account

All Pages