CASE ANALYSIS

Bluestem Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Bluestem's chemical pesticides. In the coming year, Bluestem will have environmentally safe and competitive chemicals to replace these discontinued products. Sales in the next year are expected to greatly exceed any prior year's sales. The decline in sales and profits appears to be a one-year aberration. But even so, the company president fears a large dip in the current year's profits. He believes that such a dip could cause a significant drop in the market price of Bluestem's stock and make the company a takeover target. To avoid this possibility, the company president calls in Cathi Bell, controller, to discuss this period's year-end adjusting entries. He urges her to accrue every possible revenue and to defer as many expenses as possible. He says to Cathi, "We need the revenues this year, and next year can easily absorb expenses deferred from this year. We can't let our stock price be hammered down!" Cathi didn't get around to recording the adjusting entries until January 17, but she dated the entries December 31 as if they were recorded then. Cathi also made every effort to comply with the president's request.

Instructions

(a) Who are the stakeholders in this situation, and how can team spirit lead to the achievement of stakeholders' goals

(b) What are the ethical considerations of (1) the president's request and (2) Cathi's dating the adjusting entries December 31?

(c) Draw up two key financial statement that the President expect to see at the end of the reporting year and interpret same to the president

(d) Considering the principle of best business practice and policies which all companies are expected to comply with, can Cathi accrue revenues and defer expenses and still be ethical?