Green Horizons Energy Co. is in its third year of operations, and the company has grown. To expand the business, Green Horizons borrowed $15 million from Bank of Ravenna. As a condition for making this loan, the bank required that Green Horizons maintain a current ratio of at least 1.50 and a debt ratio of no more than 0.50.
Business recently has been worse than expected. Expenses have brought the current ratio down to 1.47 and the debt ratio up to 0.51 at December 15. Dana McCoy, the general manager, is considering the result of reporting this current ratio to the bank. McCoy is considering recording this year some revenue on account that Green Horizons will earn next year. The contract for this job has been signed, and Green Horizons will deliver the natural gas during January of next year.
Requirements
1. Journalize the revenue transaction (without dollar amounts), and indicate how recording this revenue in December would affect the current ratio and the debt ratio.
2. Analyze this transaction according to the Decision Framework for Making Ethical Judgments in Chapter 1:
a. What is the issue?
b. Who are the stakeholders, and what are the alternatives? Weigh them from the standpoint of economic, legal, and ethical implications.
c. What decision would you make?
3. Propose an ethical course of action for Green Horizons.