Rudolph Corp. is a subsidiary of Hundey Corp. The ethical accountant, working as Rudolph's controller, believes that the yearly charge for doubtful accounts for Rudolph should be 2% of net credit sales. The president, nervous that the parent company might expect the subsidiary to sustain its 10% growth rate, suggests that the controller increase the charge for doubtful accounts to 3% yearly. The supervisor thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Rudolph.
Instructions
(a) Should the controller be concerned with Rudolph Corp.'s growth rate in estimating the allowance? Explain.
(b) Does the president's request pose an ethical dilemma for the controller? Why or why not?