Question

Jim Coleman, Jr. was appointed the manager of Maris Properties, a recently formed company that manages residential rental properties. Linda Grider is the accountant. She prepared a chart of accounts based on an analysis of the expenditures of the company. Two of the largest expense categories are Travel and Entertainment. Mr. Coleman believes that it is important to maintain a presence in the social life of the city. In this, he sharply differs from his father, Jim Coleman, Sr. The elder Mr. Coleman has set up Maris Properties in order to test his son's management skills before allowing him to manage the more lucrative commercial property business. Mr. Coleman, Sr. provided the capital for Maris, and maintains close contact with the company. He allowed his son, however, to hire his own employees.

Mr. Coleman has asked Ms. Grider to change the names of the Travel and Entertainment Expense accounts to Property Development. He hopes to deflect his father's attention away from the amount he has spent on travel and entertainment until he has proven that his methods work. When Ms. Grider resisted, he reminded her that he, not his father, hired her. He also reminded her that she had been enthusiastic about his business plans when she was hired.

Required:

1. Who are the stakeholders in this situation?
2. Should Ms. Grider agree to the change in the Travel Expense and Entertainment Expense accounts to Property Development? Explain.

Answer 1

1.A stake holder is a person who has interest , of some sort,cash or kind, in a business' s affairs.

So, here, the stakeholders will be :

1.the father, ie. Jim Coleman, who has invested his money, for proper & productive utilisation of the same.

2.Jim Coleman ,Jr. whose business acumen is being studied by his father--to prove his mettle.

3.The accountant,Linda Grider , whose accountimg knowledge may be questioned, if she does anything un-conceptual.

4.May also include, potential buyers , for whom prices may be escalated , when amounts are wrongly accumulated under this head of account, instead of being charged as expenses.

2.At the outset, Travel Expense and Entertainment Expense accounts are nominal accounts , under which operating expenses to carry on the core operations of the period , are collected.

whereas, property development sounds like accumulation of capital expenditure,incurred towards developing a property , which has consequences like accumulation under the head property, charged to the annual income statement as depreciation at a fixed % of the accumulated total ---& not charged fully as expense belonging to one particular year.

It is conceptually wrong to charge a revenue expense as a capital one or vice-versa.

Also charging revenue to capital, will affect (reduce)the income -tax expense also.

It will also mislead the senior Mr. Coleman

That said,

even though Linda had been enthusiastic about the business plans when she was hired, she should impress upon the latter, about the conceptual error, which will land both of them , in trouble, when his father finds it out--- who had been so liberal enough , to believe in his skills , as to set up a business as a trial ground.

So, she should not agree ,but try to make things crystal clear , with her accounting knowledge