Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company’s financial statements. Moss’s bank closely examines cash flow from operating activities. Daniel Peavey, Moss’s controller, suggests reclassifying the receivables from the slow-paying clients as long-term. He explains to the board that removing the $80,000 increase in accounts receivable from current assets will increase net cash provided by operations. This approach may help Moss get the loan. Requirements Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better? Under what condition would the reclassification of the receivables be ethical? Unethical?

Question

Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company’s financial statements. Moss’s bank closely examines cash flow from operating activities. Daniel Peavey, Moss’s controller, suggests reclassifying the receivables from the slow-paying clients as long-term. He explains to the board that removing the $80,000 increase in accounts receivable from current assets will increase net cash provided by operations. This approach may help Moss get the loan.

Requirements

  1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?
  2. Under what condition would the reclassification of the receivables be ethical? Unethical?

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Accounting

Related Accounting Q&A

Find answers to questions asked by students like you.

Q: Aston Corporation performs year-end planning in November of each year before its calendar year ends ...

A: Warren has only one option to achieve the president’s wish to use straight line method instead of do...

Q: Single Plantwide Factory Overhead RateSpotted Cow Dairy Company manufactures three products—whole mi...

A: 1. Compute single plantwide factory overhead rate using direct labor hours as allocation base as sho...

Q: Explain the importance of a contract in the revenue recognitionprocess.

A: Click to see the answer

Q: action Analysis: Debit and Credit Rules Chap APPLY WHAT YOU HAVE LEARNED 2-1. Accounting equation. U...

A: Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by...

Q: What approaches have been suggested to overcome the seasonality problem related to interim reporting...

A: Interim report: When the financial results are published for the year shorter than the fiscal year, ...

Q: Alcoa is the world’s leading producer of primary aluminum, fabricated aluminum, and alumina. The fol...

A: Explain the answer for the given requirements.

Q: At the beginning of a Type B lease, the lessee will record what asset and liability, if any?

A: Type B lease implies to the lease in which insignificant portion of the useful life of the asset is ...

Q: Using IFRS, how should prior period errors that are discovered in a subsequent reporting period be r...

A: IFRS: They are commonly known as IFRS. It is a set of accounting standards which are developed by in...

Q: In January 2017, installation costs of $6,000 on newmachinery were charged to Maintenance and Repair...

A: Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. Th...