MKT 108 Financial Accounting Question -01 Green Horizons Energy Co. is in its third year of operations, and the company has grown. To expand the business, Green Horizons borrowed $15 million from Bank of Ravenna. As a condition for making this loan, the bank required that Green Horizons maintain a current ratio of at least 1.50 and a debt ratio of no more than 0.50. Business recently has been worse than expected. Expenses have brought the current ratio down to 1.47 and the debt ratio up to 0.51 at December 15. Dana McCoy, the general manager, is considering the result of reporting this current ratio to the bank. McCoy is considering recording this year some revenue on account that Green Horizons will earn next year. The contract for this job has been signed, and Green Horizons will deliver the natural gas during January of next year. Requirements 1. Journalize the revenue transaction (without dollar amounts), and indicate how recording this revenue in December would affect the current ratio and the debt ratio. 2. Analyze this transaction according to the Decision Framework for Making Ethical Judgments in below given guidelines: a. What is the issue? b. Who are the stakeholders, and what are the alternatives? Weigh them from the standpoint of economic, legal, and ethical implications. c. What decision would you make? 3. Propose an ethical course of action for Green Horizons. DECISION GUIDELINES DECISION FRAMEWORK FOR MAKING ETHICAL JUDGMENTS Weighing tough ethical judgments in business and accounting requires a decision framework. Answering the following four questions will guide you through tough decisions: Decision 1. What is the issue? 2. Who are the stakeholders, and what are the consequences of the decision to each? Guidelines 1. The issue will usually deal with making a judgment about an accounting measurement or disclosure that results in economic consequences, often to numerous parties. 2. Stakeholders are anyone who might be impacted by the decision-you, your company, and potential users of the information (investors, creditors, and regulatory agencies). Consequences can be economic, legal, or ethical in nature, 3. Analyze the impact of the decision on all stakeholders, using economic, legal, and ethical criteria. Ask "Who will be helped or hurt, whose rights will be exercised or denied, and in what way?" 4. Exercise the courage to either defend the decision or to change it, depending on its positive or negative impact. How does your decision make you feel afterward? 3. Weigh the alternatives. 4. Make the decision and be prepared to deal with the consequences. To simplify, we might ask three questions: 1. Is the action legal? If not, steer clear, unless you want to go to jail or pay monetary damages to injured parties. If the action is legal, go on to questions 2 and 3. 2. Who will be affected by the decision and how? Bc as thorough about this analysis as possible, and analyze it from all three standpoints (economic, legal, and thical). 3. How will this decision make me feel afterward? How would it make me feel if my family reads about it in the newspaper