Question

Lindsey Contractors' borrowing agreements make certain demands on the business. Lindsey's Long-Term Debt may not exceed Stockholder's Equity, and the current ratio may not fall below 1.50. If Lindsey fails to meet this requirement, the company's lenders can take over management of the corporation.
Current Liabilities have mounted faster than current assets, causing the current ratio to fall to 1.47. Before releasing financial statements, Lindsey management is scrambling to improve the current ratio. Th controller points out that an investment can be classified as either long-term or short-term, depending on management's intention. By deciding to convert an investment to cash within one year, Lindsey can classify the investment as short-term - a current asset. On the controller's recommendation, Lindsey's board of directors votes to reclassify long-term investments as short-term.

1. Do you think that the actions taken by Lindsey's controller and board of directors are ethical. Why or why not?

2. Shortly after the financial statements are released, sales improve and so does the current ratio. As a result, Lindsey management decides not o sell the investments it had reclassified as short-term. Accordingly, Lindsey reclassifies the investments as long-term. Has management behaved unethically? Why or why not?

Answer 1

Ans:-

1 ) :-

• The moves made by Lindsey's controller and top managerial staff are not ethical.
• Because there are no thought engaged with such understanding and these assention are not substantial.

2) :-

Truly.

• The board has acted deceptively in light of the fact that It's unscrupulous for organizations to rename resources dependent on their budgetary position.
• The slang term for it is "cooking the books".
• The main time you ought to rename resources is on the off chance that you have something assessed and it turns out to a higher esteem (after remodels or revamping) than it was, or on the off chance that you change your strategy for devaluation (for example, from straight line to relapse, or exponential).
• There are a couple of different factors included, yet for the situation you're portraying it would be dishonest.
• It distorts your organization's fiscal summaries, and demonstrates a general shaky business style.