Question

Scenario:

Answer 1

• The accounting problem is needing to maintain a $200,000 balance
• The ethical considerations are lying about a balance to keep a loan and the possibility of people losing their jobs if the loan isn't maintained
• The negative impacts of not following Lisa's idea are the possibilities of defaulting on the loan
• If you do comply, the entire company could be negatively impacted because it would be fraud
• One alternative would be reaching out to the loan company to explain the issue and to see if they would allow an extension of one day to wait until the new check from Oconto Distributors comes through. If they do not agree, there is a possibility of defaulting on the loan but ultimately that is the consequence and is better than committing fraud.

Answer 2

Answer:

1) Linbarger is facing a liquidity problem which arose from poor management of cash. Their loan obligation requires they maintain a minimum balance of $200,000 on a monthly basis but as at June 30, the company only has $80,000 which is less that half of the required amount.

2) This case poses an ethical dilemma for the assistant controller as the financial vice president requires a manipulation of the accounts also known as creative accounting by recognizing the check of $150,000 as cash balance to deceive the insurance company to think that the actual cash balance is $230,000 as opposed to the actual figure of $80,000.

This dilemma poses a threat to the integrity and objectivity of the financial controller and also to the financial vice president as the duty of preparation of the account lies within her purview.

3) Negative impact:

To the company: The company would be in breach of the loan agreement with the insurance company and can face certain penalties such as accelerated repayment plan i.e. repayment of principal and interest before the due date, non-renewal of the loan contract and reduction in credit rating score.

To assistant controller: Can face intimidation threats from the directors and co-workers. The assistant controller may also lose his job

4) All stakeholders would be negatively impacted. The company may still default on the loan repayment which would involve a takeover of the company assets as the company would be declared bankrupt which may lead to a loss of job for both the assistant controller and the financial vice president as well as other workers in the firm.

5) One alternative in this scenario is that the assistant controller can resign to maintain his integrity but the downside would be the loss of job

Explanation: