Georgetown Motors is having a bad year. Net income is only $37,000 to date. Also, two important overseas customers are falling behind on their payments to Georgetown, and Georgetown’s are ballooning. The company desperately needs a loan. The Georgetown board of directors is considering ways to put the best face on the company’s financial statements. Georgetown’s bank closely examines the company’s cash flow from operations. Donna McDowell, Georgetown’s controller, suggests reclassifying as long-term the receivables from the slow-paying clients. She explains to the board that removing the $80,000 rise in from current assets will increase net cash provided by operations. This approach may help Georgetown get the loan.
Requirements
1. Using only the amounts given, calculate Georgetown’s net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes the company look better?
2. Identify the ethical issue(s).
3. Who are the ?
4. Analyze the issue from the
(a) Economic,
(b) Legal,
(c) Ethical standpoints.
What is the potential impact on all ?
5. What should the board do?
6. Under what conditions would reclassifying the receivables be considered ethical?
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