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Ethics and professional conduct in business Solar Industries develops and produces high-efficiency solar panels. The company has an outstanding $10,000,000, 30-year, 10% bond issue dated July 1, 2011. The bond issue is due June 30, 2040. Some bond indentures require the corporation issuing the bonds to transfer cash to a special cash fund, called a sinking fund, over the life of the bond. Such funds help assure investors that there will Ik* adequate cash to pay the bonds at their maturity date. The bond indenture requires a bond sinking fund, which has a balance of $1,200,000 as of July 1, 2016. I "he company is currently experiencing a shortage of funds due to a recent acquisition. Bob Lachgar, the company's treasurer, is considering using the funds from the bond sinking fund to cover payroll and other bills that are coming due at the end of the month. Bob’s brother-in-law, a trustee of Solar’s sinking fund, has indicated a willingness to allow Bob to use the funds from the sinking fund to temporarily meet the company’s cash needs. Discuss whether Bob’s proposal is appropriate.
Financial & Managerial Accounting
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Financial & Managerial Accounting
Ethics and professional conduct in business
Solar Industries develops and produces high-efficiency solar panels. The company has an outstanding $10,000,000, 30-year, 10% bond issue dated July 1, 2011. The bond issue is due June 30, 2040. Some bond indentures require the corporation issuing the bonds to transfer cash to a special cash fund, called a sinking fund, over the life of the bond. Such funds help assure investors that there will Ik* adequate cash to pay the bonds at their maturity date.
The bond indenture requires a bond sinking fund, which has a balance of $1,200,000 as of July 1, 2016. I "he company is currently experiencing a shortage of funds due to a recent acquisition. Bob Lachgar, the company's treasurer, is considering using the funds from the bond sinking fund to cover payroll and other bills that are coming due at the end of the month. Bob’s brother-in-law, a trustee of Solar’s sinking fund, has indicated a willingness to allow Bob to use the funds from the sinking fund to temporarily meet the company’s cash needs.
Discuss whether Bob’s proposal is appropriate.
Bond sinking fund: The fund that is created to repay the principal amount of bonds when they become due is known as bond sinking fund.
To Discuss: Whether Mr. B’s proposal is appropriate.
Explanation of Solution
Mr. B’s proposal is inappropriate. This is because it is unethical to use the sinking fund cash to mitigate the shortage of funds without the consent of the bondholders, even though it is used for temporary purpose. By this, Mr...
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