Exercises learning team week 5 Essay

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Ethics Case
BYP8-6
You are the assistant controller in charge of general ledger accounting at Riverside Bottling Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly.
At June 30 the cash balance is $80,000, which you report to Gena Schmitt, the financial vice president. Gena excitedly instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Gena says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down; put us all out of our jobs!” Gena continues, “I talked to Oconto Distributors (one of Riverside’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”
Instructions
1. Who will suffer negative effects if you do not comply with Gena Schmitt’s instructions? Who will suffer if you do comply?
If you do not comply then the business will be forced to close down and all employees will be out of work. If you do comply and are caught, you could definitely be fired and possibly jailed for cooking the books. Maybe Gena Schmitt will be fired as well but there is no guarantee of that in the real world. You are the one who engaged in falsification of records not her--she only suggested it. Sometimes that is enough to bring someone up on charges but not always.
2. What are the ethical considerations in this case?
Ethical considerations: your personal and professional honesty, integrity, professionalism, reliability
3. What alternatives do you have?
Large accounts usually have a person or group of persons assigned to their account. You can contact your handler at the bank and explain your situation and request a grace period. If your account is in good standing then they may grant it to you. Re-read your loan agreement, you may have a grace period to get the money in the bank.

P15-1

Comparative statement data for Douglas Company and Maulder Company, two competitors, appear below. All balance sheet data are as of December 31, 2009, and December 31, 2008.

Douglas Company
Maulder Company

2009 2008
2009
2008
Net sales
Cost of goods sold
Operating expenses
Interest expense
Income tax expense
Current assets
Plant assets (net)
Current liabilities
Long-term liabilities
Common stock, $10 par
Retained earnings
$1,549,035
1,080,490
302,275
8,980
54,500
325,975
521,310
65,325
108,500
500,000
173,460

$312,410
500,000
75,815
90,000
500,000
146,595
$339,038
241,000
79,000
2,252
6,650
83,336
139,728
35,348
29,620
120,000
38,096

$ 79,467
125,812
30,281
25,000
120,000
29,998

Instructions
(a) Prepare a vertical analysis of the 2009 income statement data for Douglas Company and
Maulder Company in columnar form.
(b) Comment on the relative profitability of the companies by computing the return on assets and the return on common stockholders’ equity ratios for both companies.

Condensed Income Statement For the Year Ended December 31, 2011

Douglas Company

Maulder Company

Dollars

Percent

Dollars

Percent

Net sales
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Other expenses and losses Interest expense
Income before income taxes
Income tax expense
Net income

$1,549,035 1,080,490 468,545 302,275 166,270

8,980 157,290 54,500
$ 102,790

100.0% 69.8% 30.2% 19.5% 10.7%

.6% 10.1% 3.5% 6.6%

$339,038 241,000 98,038 79,000 19,038

2,252 16,786 6,650
$ 10,136

100.0% 71.1% 28.9% 23.3% 5.6%

.7% 4.9% 1.9% 3.0%

(b) Douglas Company appears to be more profitable. It has higher relative gross profit, income from operations, income before taxes, and net income. Douglas’s return on
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