1.
Ethical Issue
Case Summary: The long-term creditors of Company R made conditional agreement that the company cannot purchase
Recently Company R is facing a low demand for the products and its current liabilities grows faster than the current liabilities, resulting in the current ratio become 1.47. The management is worried to work out something before releasing the financial statements. The controller suggested to convert the long-term investments into short-term by choosing to payoff within one year. The board of directors votes for the recommendation of the controller to reclassify the long-term investments to short-term investments.
To Ascertain: The effect of reclassification of investments on the current ratio, and if the financial condition of Company R will be stronger by such re-classification.
2.
To Ascertain: If the managers of Company R have behaved unethically.
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Horngren's Financial & Managerial Accounting, Student Value Edition (6th Edition)
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