Question

Chapter 5: Customer and Sales

Additionally, please refer to Chapter 6 in your Cengage Accounting eText, accessible from the eText link in the Course Navigation Panel to the left of your screen.

Requirement 1:

Margie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to “make this happen.” Margie's boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated.

Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie's boss asks her not to make the adjusting entry for shrinkage this period. He assures her that they will get “caught up” on shrinkage in the next period, after the pressure is off to reach this period's earnings goal. Margie's boss asks her to do this as a personal favor to him.

What should Margie do in this situation? Why?

Requirement 2:

On April 18, 2020, Bontanica Company, a garden retailer, purchased $9,800 of seed, terms 2/10, n/30, from Whitetail Seed Co. Even though the discount period had expired, Shelby Davey subtracted the discount of $196 when he processed the documents for payment on May 1, 2020.

Discuss whether Shelby Davey behaved in a professional manner by subtracting the discount even though the discount period had expired.

Responses to Classmates:

Please let your classmates know if you agree or disagree with the information that they provided in Requirement 1 or Requirement 2 and explain why.

Response to Instructor:

Please check your thread for questions or comments from me and be sure to provide a comprehensive response, as requested.

Writing:

Please make sure that your initial post contains a properly cited reference. Please use APA style. You should cite your text as a minimum. Additionally, check your spelling and proofread your post before you hit the submit button.

Answer 1

Answer:

1. Margie has been placed in a very difficult position. Someone whom she trusts and respects has asked her to do something that is clearly unethical. If Margie makes the adjusting entry, her boss could very well be terminated. Yet, Margie's primary responsibility has to be on preparing relevant and representationally faithful financial information that is useful for decision making. Margie should, therefore, make the appropriate adjusting entry. Being right, however, doesn't always make a decision easy. Margie's actions could very well result in the termination of her boss and mentor.

In order for financial information to be representationally faithful, it must be free of bias. The company president is clearly trying to pressure the accounting department to create biased financial statements, which is inappropriate. While Margie should not bend on the issue of making the adjusting entry, she should bring this issue to the attention of the internal audit department or the board of directors.

2. Standards of Ethical Conduct for Management Accountants requires management accountants to perform in a competent manner and to comply with relevant laws, regulations, and technical standards. If Shelby Davey intentionally subtracted the discount knowing that the discount period had expired, he would have behaved in an unprofessional manner. Such behavior could eventually jeopardize Bontanica Company’s buyer/supplier relationship with Whitetail Seed Co.