Puebla Corporation is a medium-sized hotel corporation. It has ten stockholders, who have been paid a total

Question:

Puebla Corporation is a medium-sized hotel corporation. It has ten stockholders, who have been paid a total of $1 million in cash dividends for eight consecutive years. The policy of the board of directors requires that in order for this dividend to be declared, net cash provided by operating activities as reported in Puebla’s current year’s statement of cash flows must be in excess of $1 million. President and CEO Phil Monat’s job is secure so long as he produces annual operating cash flows to support the usual dividend.

At the end of the current year, controller Rick Rodgers presents President Monat with some disappointing news: The net cash provided by operating activities is calculated, by the indirect method, to be only $970,000.The president says to Rick,“ We must get that amount above $1 million. Isn’t there some way to increase operating cash flow by another $30,000?” Rick answers, “These figures were prepared by my assistant. I’ll go back to my office and see what I can do.” The president replies, “I know you won’t let me down, Rick.” Upon close scrutiny of the statement of cash flows, Rick concludes that he can get the operating cash flows above $1 million by reclassifying a $60,000, two-year note payable listed in the financing activities section as “Proceeds from bank loan—$60,000.” He will report the note instead as “Increase in payables—$60,000” and treat it as an adjustment of net income in the operating activities section. He returns to the president saying, “You can tell the board to declare their usual dividend. Our net cash flow provided by operating activities is $1,030,000.”

“Good man, Rick! I knew I could count on you,” exults the president.

(a) Who are the stakeholders in this situation?

(b)Was there anything unethical about the president’s actions? Was there anything unethical about the controller’s actions?

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...