APPENDIX A: Trial Balance of Connections Company as of November 30, 2019 Account No. Account Title Debit Credit 110 Cash P 674,000 112 Accounts Receivable 280,000 113 Allowance for Doubtful Accounts P 33,600 115 Merchandise Inventory, December 1, 2018 890,000 117 Prepaid Insurance Expense 50.000 118 Store Supplies 12.000 123 Store Furniture and Equipment 650,000 124 Accumulated Depreciation - Store 130,000 Furniture and Equipment 210 Accounts Payable 219,000 212 Salaries Payable 93,000 221 Unearned Sales Revenue 80,000 310 Bill Ding, Capital, December 1, 2018 765.400 311 Bill Ding, Drawing 105.000 410 Sales 6,633,000 411 Sales Returns and Allowances 44,000 412 Sales Discount 55,000 510 Purchases 3,311,000 511 Purchase Returns and Allowances 27,000 512 Purchase Discount 19,000 514 Freight-in 10.000 520 Sales Salaries Expense 780,000 $21 Advertising Expense 70,000 522 Depreciation Expense - Store Furniture and 65,000 Equipment 523 Store Supplies Expense 8,000 524 Freight-out 11,000 529 Miscellaneous Distribution Costs 22,000 530 Office Salaries Expense 472,000 531 Rent Expense 210,000 532 Utilities Expense 138,000 533 Insurance Expense 100,000 534 Doubtful Accounts Expense 26,000 539 Miscellaneous Administrative Expenses 17,000 699 Income Summary TOTAL P8,000,000 P8,000,000 INSTRUCTIONS: a. Who are the stakeholders? What are their needs when it comes to accounting information? b. What is/are the ethical dilemma/'s in the case? Discuss in detail. C. What are the alternative courses of action for Connie? Identify and describe at least three alternatives, including each alternative's pros and cons. d. From the alternatives identified in (c) above, what is your recommended course of action for Connie? e. Present as attachment the following financial statements for Connections Company after incorporating your recommendation in (d): i. Functional-form income statement for the year ended November 30, 2019; li. Statement of changes in equity for the year ended November 30, 2019; iii. Report-form statement of financial position as of November 30, 2019; and iv. Any supporting notes to financial statements. f. What are your concluding thoughts/remarks about the case? g. What is the conclusion and recommendationSources: (1) Warren, C.S., Reeve, J.M., & Duchac, J.E. (2018). Accounting (27th ed.). Boston, MA: Cengage Learning; and (2) Lamberton, B. (2018, March). Bonnie Morgen: First Day on the Job and Facing an Ethical Dilemma. IMA Educational Case Journal, 11 (1). Institute of Management Accountants (ISSN 1940-204X). CONNECTIONS COMPANY is a merchandising business that uses the periodic inventory system. Today is Connie's first day on the job as its controller. She has been with the company for more than a decade now and is replacing Jennie who recently left the company to focus on her family's business. Jennie's previous work experience included 10 years of working at an entrepreneurial venture and does not have a lot of formal accounting training. Ronnie, the senior accounting supervisor, walks into Connie's office and hands her this year's financial statements (See Appendix A for the trial balance). Ronnie has been with the company for five years and has a solid background in auditing. Connie (C): Ronnie, sit down. You look troubled. Ronnie (R): Yes, the internal forecast we prepared last year for Jennie and Bill (general manager and owner) showed us missing the budgeted profits this fiscal year, which ends November. My analysis showed that ending inventory which amounted to P975,000 was due to an unexpected price increase, and the work stoppage at the factory of one of our biggest customers explain most of the shortfall. Jennie claimed that she was being pressured by Bill, so her solution was to play some games. C: Let's face it - Bill can be quite scary. Some big bonuses are on the line, and everything rides on meeting the budgeted profit. Personally, I think the criteria for bonuses and promotions puts too much emphasis on meeting the budget. That can make it hard to stand up against any 'creative accounting'. But, that is part of the job. You know Casper? He loves to tell the story that Bill joked about not recording depreciation for the year when the forecast showed that the budget would be missed. Anyway, what did Jennie do? R. She booked some new orders as sales. C: What?!? The lead time would mean that those orders would not be shipped until January of next year. What was Jennie thinking? R. She did not care. More than once I heard her say that she was a big-picture person and no one should expect her to learn about the detailed accounting rules. C: Someone needs to look into the selection and hiring process. I know the job description for my position is not that well-defined. So what justification did she give for her action? R. She said an order is as good as a sale, and they would eventually be shipped. It was only a slight timing issue. C: Did you try to talk her out of it? R. Yeah, but Jennie was not someone to cross. Last quarter, Jennie tried to pressure Tom to hold back some bills and told him not to accrue them. Tom flat out refused. When we ended up missing the budget, Jennie wrote her a memo for insubordination. C: Is that why Tom resigned? R. I believe so. Unlike Tom, I cannot afford to change jobs right now. Jennie was letting me work at home some days so that I could care for my kids when my wife had to leave the country for a project. Back to the issue, I told Jennie that I was not comfortable recording those orders as sales since doing so would be a blatant violation of revenue recognition rules. I tried to be less confrontational than Tom would have been under the same circumstances. C: What exactly did she do then? R. She told me to stop being such a 'bean counter' type and look at the big picture. She then pre- selected some newly-arrived orders and recorded them herself as completed sales. C: What's the damage? How far off are this year's reported results? R. Booking those orders resulted in a material overstatement of this year's revenues by P522,000. Plus, we are essentially stealing sales from next fiscal year. I have the files here. C: Did you go to Bill once you saw that Jennie would not change her mind? R. No. Before we knew it, Jennie was gone and you were replacing her. I figured I would lay the whole thing out for you