Question
As its year-end approaches, it appears that Ortiz Corporations net income will increase 10% this year. The president of Ortiz Corporation, nervous that the stockholders
As its year-end approaches, it appears that Ortiz Corporations net income will increase 10% this year. The president of Ortiz Corporation, nervous that the stockholders might expect the company to sustain this 10% growth rate in net income in future years, suggests that the controller increase the allowance for doubtful accounts to 4% of receivables in order to lower this years net income. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate of growth for Ortiz Corporation in future years. The controller of Ortiz Corporation believes that the companys yearly allowance for doubtful accounts should be 2% of receivables. (a) Who are the stakeholders in this case?
(b) Does the president's request pose an ethical dilemma for the controller? Why or why not?
(c) Should the controller be concerned with Ortiz Corporations growth rate in estimating the allowance? Why or why not?
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