Question
Gary Robinson is the CEO of Galaxy Corporation. The company's operating results had been very steady in the last 5 years. As the company had
Gary Robinson is the CEO of Galaxy Corporation. The company's operating results had been very steady in the last 5 years. As the company had no large scale expansion plan, the board of directors thus decided to pay out a large percentage of the company's net income to shareholders as dividend. The annual dividend in the last 3 years was $10 million. The board of directors' policy is such that the dividend payment should not exceed the net cash provided by operating activity to ensure sound business operation.
This year, due to the economic downturn, collection of accounts receivables was not as good as that for previous years. Three weeks after the financial year end, Teresa Bailey, the CFO, submitted a set of financial statements of year 2019 for Ken's review. Two days later, Gary called Teresa and Larry -the accounting manager for a meeting. The CEO noted that the cash flow provided by operating activity was only $ 9 million, and this implied the company cannot declare $10 million as dividend. Gary said to Teresa, "We must make this figure to at least $10 million. You guys are financial expert and must be able to help me out. I know you won't let me down."
The next day, Larry went to Teresa's office and said, "I have carefully reviewed the statement of cash flows. We can reclassify the 18-month note payable issued to Milton Bank for a bank loan of $2 million to accounts payable. By doing so, we can treat this note as a change in accounts payable in the operating activities section instead of a bank loan in the financing activities section. I cannot find you this morning and I have reported this idea to the CEO. He is very happy because he can advise the board of directors to pay $10 million dividend as usual. The shareholders will be happy with the dividend too. Teresa considered she could keep away from this issue as the CEO and her subordinate Larry had decided what to do.
I have a question, who may discover and report this issue?
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