1-35 Professional ethics and end-of-year actions. Linda Butler is the new division controller of thesnack-foods division of Daniel Foods. Daniel Foods has reported a minimum 15% growth in annual earningsfor each of the past 5 years. The snack-foods division has reported annual earnings growth of more than20% each year in this same period. During the current year, the economy went into a recession. The corpo-rate controller estimates a 10% annual earnings growth rate for Daniel Foods this year. One month beforethe December 31 fiscal year-end of the current year, Butler estimates the snack-foods division will report anannual earnings growth of only 8%. Rex Ray, the snack-foods division president, is not happy, but he notesthat the "end-of-year actions" still need to be taken.Butler makes some inquiries and is able to compile the following list of end-of-year actions that weremore or less accepted by the previous division controller:a. Deferring December's routine monthly maintenance on packaging equipment by an independent con-Tds0b. Extending the close of the current fiscal year beyond December 31 so that some sales of next yearaldianogtractor until January of next year.Hofoincluded in the current year.c. Altering dates of shipping documents of next January's sales to record them as sales in December ofthe current year.d. Giving salespeople a double bonus to exceed December sales targets.Deferring the current period's advertising by reducing the number of television spots run in Decemberand running more than planned in January of next year.f. Deferring the current period's reported advertising costs by having Daniel Foods' outside advertisingagency delay billing December advertisements until January of next year or by having the agencyalter invoices to conceal the December date.g. Persuading carriers to accept merchandise for shipment in December of the current year even thoughthey normally would not have done so.1. Why might the snack-foods division president want to take these end-of-year actions?2. Butler is deeply troubled and reads the "Standards of Ethical Behavior for Practitioners of Manage-ment Accounting and Financial Management" in Exhibit 1-7 (page 17). Classify each of the end-of-yearo1actions (a-g) as acceptable or unacceptable according to that document.3. What should Butler do if Ray suggests that these end-of-year actions are taken in every division ofDaniel Foods and that she will greatly harm the snack-foods division if she does not cooperate andpaint the rosiest picture possible of the division's results?

Question
Asked Sep 8, 2019
1-35 Professional ethics and end-of-year actions. Linda Butler is the new division controller of the
snack-foods division of Daniel Foods. Daniel Foods has reported a minimum 15% growth in annual earnings
for each of the past 5 years. The snack-foods division has reported annual earnings growth of more than
20% each year in this same period. During the current year, the economy went into a recession. The corpo-
rate controller estimates a 10% annual earnings growth rate for Daniel Foods this year. One month before
the December 31 fiscal year-end of the current year, Butler estimates the snack-foods division will report an
annual earnings growth of only 8%. Rex Ray, the snack-foods division president, is not happy, but he notes
that the "end-of-year actions" still need to be taken.
Butler makes some inquiries and is able to compile the following list of end-of-year actions that were
more or less accepted by the previous division controller:
a. Deferring December's routine monthly maintenance on packaging equipment by an independent con-
Tds0
b. Extending the close of the current fiscal year beyond December 31 so that some sales of next year
aldianog
tractor until January of next year.
Hofo
included in the current year.
c. Altering dates of shipping documents of next January's sales to record them as sales in December of
the current year.
d. Giving salespeople a double bonus to exceed December sales targets.
Deferring the current period's advertising by reducing the number of television spots run in December
and running more than planned in January of next year.
f. Deferring the current period's reported advertising costs by having Daniel Foods' outside advertising
agency delay billing December advertisements until January of next year or by having the agency
alter invoices to conceal the December date.
g. Persuading carriers to accept merchandise for shipment in December of the current year even though
they normally would not have done so.
1. Why might the snack-foods division president want to take these end-of-year actions?
2. Butler is deeply troubled and reads the "Standards of Ethical Behavior for Practitioners of Manage-
ment Accounting and Financial Management" in Exhibit 1-7 (page 17). Classify each of the end-of-year
o1actions (a-g) as acceptable or unacceptable according to that document.
3. What should Butler do if Ray suggests that these end-of-year actions are taken in every division of
Daniel Foods and that she will greatly harm the snack-foods division if she does not cooperate and
paint the rosiest picture possible of the division's results?
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1-35 Professional ethics and end-of-year actions. Linda Butler is the new division controller of the snack-foods division of Daniel Foods. Daniel Foods has reported a minimum 15% growth in annual earnings for each of the past 5 years. The snack-foods division has reported annual earnings growth of more than 20% each year in this same period. During the current year, the economy went into a recession. The corpo- rate controller estimates a 10% annual earnings growth rate for Daniel Foods this year. One month before the December 31 fiscal year-end of the current year, Butler estimates the snack-foods division will report an annual earnings growth of only 8%. Rex Ray, the snack-foods division president, is not happy, but he notes that the "end-of-year actions" still need to be taken. Butler makes some inquiries and is able to compile the following list of end-of-year actions that were more or less accepted by the previous division controller: a. Deferring December's routine monthly maintenance on packaging equipment by an independent con- Tds0 b. Extending the close of the current fiscal year beyond December 31 so that some sales of next year aldianog tractor until January of next year. Hofo included in the current year. c. Altering dates of shipping documents of next January's sales to record them as sales in December of the current year. d. Giving salespeople a double bonus to exceed December sales targets. Deferring the current period's advertising by reducing the number of television spots run in December and running more than planned in January of next year. f. Deferring the current period's reported advertising costs by having Daniel Foods' outside advertising agency delay billing December advertisements until January of next year or by having the agency alter invoices to conceal the December date. g. Persuading carriers to accept merchandise for shipment in December of the current year even though they normally would not have done so. 1. Why might the snack-foods division president want to take these end-of-year actions? 2. Butler is deeply troubled and reads the "Standards of Ethical Behavior for Practitioners of Manage- ment Accounting and Financial Management" in Exhibit 1-7 (page 17). Classify each of the end-of-year o1actions (a-g) as acceptable or unacceptable according to that document. 3. What should Butler do if Ray suggests that these end-of-year actions are taken in every division of Daniel Foods and that she will greatly harm the snack-foods division if she does not cooperate and paint the rosiest picture possible of the division's results?

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Step 1

The management is responsible for presenting a true and fair view of the financial statements. However, they are under constant pressure of various stakeholders to show higher growth and high returns and improved performances. Also, the previous year's performance is seen as the benchmark for assessing the performance of the current year.

Step 2

1.  The snackfood division has shown an annual growth of 20% over last five years which is higher than the company's growth rate of 15%. Hence, the snack-food division's performance plays an important role in the financial results of the company.

In the current year, since the growth rate of the divison is estimated to be only 8% when compared to 20% of past five years, the performance and effeciency of the division is likely to be questioned. By deferring the reecording of expenses, advanced booking of revenues and deflating inventory, the profits of the divison can be inflated. So, the snacks-food division president might might to take the given end-of the-year actions.

Step 3

2. The classification of acceptable and unacceptable behavior is as follows

a. Unacceptable- as it will stake the safety and performance of the packing Equipment

b. Unacceptable- Only the sales made till the end of the financial year needs to be reported and extending the date jeopardises the true and fair view

c. Unacceptable- Only the sales made till the end of the financial year needs to be reported and extending the date jeopardises the true and fair view.

d.Acceptable- Gi...

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