Wells Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Wells' chemical pesticides. During the coming year, Wells will have environmentally safe and competitive replacement chemicals to replace these discontinued products. Sales in the next year are expected to greatly exceed those of any prior year. Therefore, the decline in this year's sales and profits appears to be a one-year aberration. Even so, the company president believes that a large dip in the current year's profits could cause a significant drop in the market price of Wells's stock and make it a takeover target. To avoid this possibility, he urges Tim Allen, controller, to accrue every possible revenue and to defer as many expenses as possible in making this period's year-end adjustments. The president says to Tim, “We need the revenues this year, and next year we can easily absorb expenses deferred from this year. We can't let our stock price be hammered down!” Tim didn't get around to recording the adjustments until January 17, but he dated them December 31 as if they were recorded then. Tim also made every effort to comply with the president's request. Discuss the following questions: What are the ethical considerations of the president's request and Tim's dating the adjustments December 31? Can Tim accrue revenues and defer expenses and still be ethical?
Wells Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Wells' chemical pesticides. During the coming year, Wells will have environmentally safe and competitive replacement chemicals to replace these discontinued products. Sales in the next year are expected to greatly exceed those of any prior year. Therefore, the decline in this year's sales and profits appears to be a one-year aberration.
Even so, the company president believes that a large dip in the current year's profits could cause a significant drop in the market price of Wells's stock and make it a takeover target. To avoid this possibility, he urges Tim Allen, controller, to accrue every possible revenue and to defer as many expenses as possible in making this period's year-end adjustments.
The president says to Tim, “We need the revenues this year, and next year we can easily absorb expenses deferred from this year. We can't let our stock price be hammered down!”
Tim didn't get around to recording the adjustments until January 17, but he dated them December 31 as if they were recorded then. Tim also made every effort to comply with the president's request.
Discuss the following questions:
- What are the ethical considerations of the president's request and Tim's dating the adjustments December 31?
- Can Tim accrue revenues and defer expenses and still be ethical?
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