The Hartley Paper Company, owned and operated by Bill Hartley, manufactures and sells different types of computer paper. The company has reported profits in the majority of years since the companys inception in 1962 and is projecting a profit in 2015 of $65,000, down from $96,000 in 2014. Near the end of 2015, the company is in the process of applying for a bank loan. The loan proceeds will be used to replace manufacturing equipment necessary to modernize the manufacturing operation. In preparing the financial statements for the year, the chief accountant, Don Davis, mentioned to Bill Hartley that approximately $40,000 of paper inventory has become obsolete and should be written off as a loss in 2013. Bill is worried that the write-down would lower 2015 income to a level that might cause the bank to refuse the loan. Without the loan, it would be difficult for the company to compete. This could cause decreased future business and employees might have to be laid off. Bill is considering waiting until 2016 to write down the inventory. Don Davis is contemplating his responsibilities in this situation.

For this case, Hartley Paper Company is facing some challenges in reporting inventory. As a group, you are required to study the case carefully and then make a final decision between the following three alternative actions: 1. Report the inventory at its current value (i.e. do not make any inventory write-offs) 2. Write down the inventory and record a loss of $40,000 in 2015. 3. Resign from the company if Hartley persists in maintaining the inventory at its current level.

Required: 1. As a group, evaluate each alternative action above and discuss its positive and negative consequences. Be sure to explain your logic clearly. 2. As a group, make a decision on the alternative that you would choose as the CFO of the Hartley Paper Company. Make sure you state WHY you made this choice.