Evaluating an Ethical Dilemma Mike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his compensation package comprises a base salary, commissions, and a bonus when the region sells new policies in excess of its quota. Mike has been under enormous pressure lately, stemming largely from two factors. First, he is experiencing a mounting personal debt due to a family member’s illness. Second, compounding his worries, the region’s sales of new policies have dipped below the normal quota for the first time in years. You have been working for Mike for two years, and like everyone else in the office, you consider yourself lucky to work for such a supportive boss. You also feel great sympathy for his personal problems over the last few months. In your position as accountant for the regional office, you are only too aware of the drop in new policy sales and the impact this will have on the manager’s bonus. While you are working late at year-end, Mike stops by your office. Mike asks you to change the manner in which you have accounted for a new property insurance policy for a large local business. A substantial check for the premium came in the mail on December 31, the last day of the re porting year. The premium covets a period beginning on January 5. You deposited the check and correctly debited Cash and credited an unearned revenue account. Mike says, “Hey. we have the money this year, so why not count the revenue this year? I never did understand why you accountants are so picky about these things anyway. I’d like you to change the way you have recorded the transaction. I want you to credit a revenue account. And anyway. I’ve done favors for you in the past, and I am asking for such a small thing in return.’’ With that, he leaves for the day. Required: 1. How should you handle this situation? 2. What are the ethical implications of Mike’s request? 3. Who are the parties who would be helped or harmed if you complied with the request? 4. If you fail to comply with his request, how will you explain your position to him in the morning?

Jason Kemp was torn between conflicting emotions. On the one hand, things were going so well. He had just completed 6 months as the assistant financial manager in the Electronics Division of Med-Products Inc. The pay was good, he enjoyed his coworkers, and he felt that he was part of a team that was making a difference in American health care. On the other hand, his latest assignment was causing some sleepless nights. Mel Cravens, his boss, had asked him to “refine” the figures on the division’s latest project—a portable imaging device code—named ZM. The original estimates called for investment of $15.6 million and projected annual income of $1.87 million. Med-Products required an ROI of at least 15% for new project approval. So far, ZM’s rate of return was nowhere near that hurdle rate. Mel encouraged him to show increased sales and decreased expenses in order to get the projected income above $2.34 million. Jason asked for a meeting with Mel to voice his concerns. Jason: Mel, I’ve…

Boxes-and-Stuff, a box-packing and mailing company in a small town along the Gulf Coast, lost a key employee last month when its accounting manager was fired for embezzling company money. Now, the owners of Boxes-and-Stuff, Jerome and Natalia, need to find another accounting manager—fast. But as they hurry to fill the position, they don’t want to select a dishonest or incompetent employee. They need to be cautious. Fortunately, the police chief found the embezzled funds in a bank account set up by the former employee and authorized the return of the money. This means that Boxes-and-Stuff will not lose the embezzled amount, after all. However, Jerome and Natalia are already thinking of ways to protect their company from other risks. They want to be prepared for risky situations in the future. 1. Which risks do you think Boxes-and-Stuff might face? 2. How do you think the company should handle the risks you’ve identified?

Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Ms. Faye Santos is an accounting major at a Midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan areas and visit their homes regularly on the weekends. Faye, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. She believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Faye has gathered the following investment information. Five used vans would cost a total of $75,000 to purchase and would have a three-year useful life with negligible salvage value. Faye plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $48,000. 3. Other annual out-of-pocket expenses…

Was Anna effective in controlling her expenses? the attached images are the problem and the answer.

Big Tractor, Inc.'s best salesperson is Misty Hammond. Hammond's largest sales have been to Farmer's Cooperative, a customer she brought to the company. Another salesperson, Bob Blanchette has been told in confidence by his cousin (an employee of Farmer's Cooperative) that Farmer's Cooperative is experiencing financial difficulties and may not be able to pay Big Tractor Inc. what is owed. Both Hammond and Blanchette are being considered for a promotion to a new sales manager position. What are the ethical considerations that Bob Blanchette faces? What alternatives do you think he has?

Day Street Deli’s owner is disturbed by the poor profit performance of his ice cream counter.He has prepared the following profit analysis for the year just ended: he owner is thinking the elimination of this counter. If it is eliminated then: ✓ Depreciation of counter equipment is avoidable ✓ The supervisory salaries is avoidable✓ The insurance expense is unavoidable ✓ The depreciation of building unavoidable ✓ The general overhead is unavoidable Required:a) Should the company eliminate the counter or not? Show your calculations and justify your answer.b) Mention at least three relevant costs.

Wharton Associates is a recently formed law partnership. Denise Peyton, the managing partner of Wharton Associates, has just finished a tense phone call with Gus Steger, president of Steger Enterprises. Gus strongly complained about the price Wharton charged for some legal work done for his company. Peyton also received a phone call from its only other client, Bluestone, Inc., which was very pleased with both the quality of the work and the price charged on its most recent job. Wharton Associates operates at capacity and uses a cost-based approach to pricing (billing) each job. Currently it uses a simple costing system with a single direct-cost category (professional labor-hours) and a single indirect-cost pool (general support). Indirect costs are allocated to cases on the basis of professional labor-hours per case. The job files show the following: Steger…

The chief executive officer of Coca Cola Company in Nizwa was very happy with his sales team for their performance in the year 2020, despite the covid-19 pandemic. Because of this development, the chief executive officer decided to include a very good package to the compensation plan for the existing salesmen and even the new recruits. Some of the benefits includes VIP membership card for golf sport, Club membership for prestigious Gym in Muscat, international medical coverage, maternity leave and many other benefits. What kind of compensation plan did the chief executive officer apply for his staff? a. Fringe benefit b. Commission O c. Bonus benefit d. Combined benefit

Ellie Ice-cream’s owner is disturbed by the poor profit performance of his ice cream counter. He has prepared the following profit analyses for the year just ended: The owner is thinking the elimination of this counter. If it is eliminated then:  Depreciation of counter equipment is avoidable  The supervisory salaries is avoidable The insurance expense is unavoidable  The depreciation of building unavoidable  The general overhead is unavoidable Required:a) Should the company eliminate the counter or not? Fill in the table and justify your answer. b) Mention at least three relevant costs.

Susan Whitehead serves on the city planning commission. The city is planning to build a new subway system, and Susan's brother-in-law, Jerry, who owns the Custom Transportation Co., has submitted the lowest bid for the system. Susan knows that Jerry could complete the job for the estimated amount, but she also knows that once Jerry completes this job, he will probably sell his company and quit working. Susan is concerned that Custom subsequent management might not be as easy to work with if revisions need to be made on the subway system after its completion. She is torn as to whether she should tell the city about the potential changes in Custom Transportation's management. If the city knew about the instability of Custom, it might prefer to give the contract to one of Jerry's competitors, whose bid was only slightly higher than Jerry's. Does Susan have an ethical obligation to disclose the information about Jerry to the city planning commission? Discuss fully.

Consider the following conversation between Gary Means, manager of a division that produces industrial machinery, and his controller, Donna Simpson, a certified management accountant and certified public accountant: Gary: Donna, we have a real problem. Our operating cash is too low, and we are in desperate need of a loan. As you know, our financial position is marginal, and we need to show as much income as possibleand our assets need bolstering as well. Donna: I understand the problem, but I dont see what can be done at this point. This is the last week of the fiscal year, and it looks like well report income just slightly above breakeven. Gary: I know all this. What we need is some creative accounting. I have an idea that might help us, and I wanted to see if you would go along with it. We have 200 partially finished machines in process, about 20% complete. That compares with the 1,000 units that we completed and sold during the year. When you computed the per-unit cost, you used 1,040 equivalent units, giving us a manufacturing cost of 1,500 per unit. That per-unit cost gives us cost of goods sold equal to 1.5 million and ending work in process worth 60,000. The presence of the work in process gives us a chance to improve our financial position. If we report the units in work in process as 80% complete, this will increase our equivalent units to 1,160. This, in turn, will decrease our unit cost to about 1,345 and cost of goods sold to 1.345 million. The value of our work in process will increase to 215,200. With those financial stats, the loan would be a cinch. Donna: Gary, I dont know. What youre suggesting is risky. It wouldnt take much auditing skill to catch this one. Gary: You dont have to worry about that. The auditors wont be here for at least 6 to 8 more weeks. By that time, we can have those partially completed units completed and sold. I can bury the labor cost by having some of our more loyal workers work overtime for some bonuses. The overtime will never be reported. And, as you know, bonuses come out of the corporate budget and are assigned to overheadnext years overhead. Donna, this will work. If we look good and get the loan to boot, corporate headquarters will treat us well. If we dont do this, we could lose our jobs. Required: 1. Should Donna agree to Garys proposal? Why or why not? To assist in deciding, review the corporate code of ethics standards described in Chapter 1. Do any apply? 2. Assume that Donna refuses to cooperate and that Gary accepts this decision and drops the matter. Does Donna have any obligation to report the divisional managers behavior to a superior? Explain. 3. Assume that Donna refuses to cooperate; however, Gary insists that the changes be made. Now what should she do? What would you do? 4. Suppose that Donna is 63 and that the prospects for employment elsewhere are bleak. Assume again that Gary insists that the changes be made. Donna also knows that his supervisor, the owner of the company, is his father-in-law. Under these circumstances, would your recommendations for Donna differ?

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