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Ethical Dilemma: Cash Sales

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Read Ethical Dilemma: Cash Sales on page 285 of your textbook. In a two to three page paper, answer the six questions which follow the scenario. Make sure you follow APA guidelines and use at least two outside resources in your response.

1. What is the potential conflict?
2. What could be negotiated to resolve the present situation and prevent future conflict?
3. Do you have any obligation to Nathan as a fellow member of the team?
4. Do you have an obligation to voice your suspicions to management?
5. What risks do you face if you do/don't speak up?
6. Based on your value system, what would you do?

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In this ethical dilemma scenario it appears that the potential conflict is based upon the fact that Nathan is not ringing up or recording all of the cash sales that he is making on a nightly basis. This individual is putting this money into the tip box instead of ringing it up as cash sales. This can result in a tremendous conflict due to the fact that this causes there to be the appearance of a decline in sales to the management of the organization, which will place all of the staff members under suspicion. This is also a source of potential conflict due to the fact that this individual is actually stealing from the organization by putting the sales in the tip box instead of ringing them up as sales for the organization, which unethically increases the amount of money in the tip box.

In order to resolve this problem it is possible that some negotiations could take place in order to solve this conflict in an efficient and effective manner. In order to solve this conflict the other staff members could negotiate with Nathan that they will not report his failure to ring up cash sales to the management of the organization, as long as Nathan agrees to stop these activities immediately. It ...

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Budgeting in a Nutshell; An Ethical Dilemma

See attached file.

CASE 23.1 Budgeting in a Nutshell

The purpose of this problem is to demonstrate some of the interrelationships in the budgeting process. Shown below is a very simple balance sheet at January 1, along with a simple budgeted income statement for the month. (Assume dollar amounts are stated in thousands; you also may state dollar amounts in this manner.)

As Nutshell has no plant assets, there is no depreciation expense. Prepare a cash budget for January and a budgeted balance sheet as of January 31.

These budgets are to reflect your own assumptions as to the amounts of cash and credit sales, collections of receivables, purchases of inventory, and payments to suppliers. We require only that the cash balance be $50 at January 31, that receivables and inventory change from the January 1 levels, and that the company engage in no â??financingâ? or â??investingâ? activities (as these terms are used in a statement of cash flows).

Clearly state your assumptions as part of your solution, and be prepared to explain in class how they result in the amounts shown in your budgets.

Case 23.2 An ethical Dilemma

Beta Computers is experiencing financial difficulties attributed to declining sales of its mainframe computer systems. Several years ago, the company obtained a large loan from the Midland State Bank. The covenants of the loan agreement strictly state that if Beta is unable to maintain a current ratio of 3:1, a quick ratio of 1:1, and a return on assets of 12 percent, the bank will exercise its right to liquidate the company's assets in settlement of the loan. To monitor Beta's performance, the bank demands quarterly financial statements that have been reviewed by an independent CPA.

Nick Price, Beta's CEO, has just reviewed the company's master budget projections for the first two quarters of the current year. What he has learned is disturbing. If sales trends continue, it appears that Beta will be in violation of its loan covenants by the end of the second quarter. If these projections are correct, the bank might foreclose on the company's assets. As a consequence, Betaâ??s 750 employees will join the ranks of the unemployed.

In February of the current year, Rembrant International contacted Beta to inquire about purchasing a custom-configured mainframe computer system. Not only would the sale generate over a million dollars in revenue, it would put Beta back in compliance with its loan covenants. Unfortunately, Rembrant International is an extremely bad credit risk, and the likelihood of collecting on the sale is slim. Nonetheless, Nick Price approved the sale on February 1, which resulted in the recording of a $1.4 million receivable.

On March 31, Edgar Gamm, CPA, arrived at Beta's headquarters. In Gamm's opinion, the $1.4 million receivable from Rembrant International should immediately be written off as uncollectible. Of course, if the account is written off, Beta will be in violation of its loan covenants and the bank will soon foreclose. Gamm told Price that it is his professional duty to prevent any material misstatement of the company's assets.

Price reminded Gamm that if the account is written off, 750 employees will be out of work, and that Gamm's accounting firm probably could not collect their fee for this engagement. Price then showed Gamm Beta's master budget for the third and fourth quarters of the current year. The budget indicated a complete turnaround for the company. Gamm suspected, however, that most of the budget's estimates were overly optimistic.

Instructions

a. Should Gamm insist that the Rembrant International account be classified as uncollectible? Should the optimistic third and fourth quarter master budget projections influence his decision? What would you do if you were in his position? Defend your actions.

b. If you were the president of the Midland State Bank, what would you do if you discovered that the Rembrant International account constituted a large portion of Beta's reported liquid assets and sales activity for the quarter? How would you react if Edgar Gamm's accounting firm had permitted Beta to classify the account as collectible?

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