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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Ethics, Internal Controls, and the Capitalization Decision

James Sage, an assistant controller in a large company, has a friend and former classmate, Henry Cactus, who sells computers. Sage agrees to help Cactus get part of the business that has been going to a large national computer manufacturer for many years. Sage knows that the controller would not approve a shift away from the national supplier but believes that he can authorize a number of small orders for equipment that will escape the controller’s notice. Company policy requires that all capital expenditures be approved by a management committee; however, expenditures under $2,000 are considered expenses and are subject to much less scrutiny. The assistant controller orders four computers to be used in a distant branch office. In order to keep the size of the order down, he makes four separate orders over a period of several months.

Required:

What are the probable consequences of this behavior for the company? For the assistant controller?

To determine

Introduction:

Ethics means morals implies moral rules that oversee an individual’s conduct or the directing of an action.

Internal control means an inward control is a methodology or strategy set up by the executives to shield resources, advance responsibility, increment effectiveness, and stop fake conduct. As it were, an interior control is a procedure set up to keep representatives from taking resources or submitting extortion.

Capitalization decision means Capitalization, in bookkeeping, is the point at which the expenses to procure an advantage are expensed over the life of that benefit as opposed to in the period it was brought about. In money, capitalization is the entirety of an organization’s stock, long haul obligation, and held income.

To choose:

What are the probable consequences of this behavior for the company?

Explanation

As per this question, Company policy requires that all capital expenditure be approved by a management committee, however expenditure under $2000 are consider and are subject to much less scrutiny.

The assistant controller orders four computer to be used in a distant branch office...

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