Unique Graphic's is a privately held company specializing in packaging labels.Firm management has just returned from Germany where a German firm is manufacturing a custom-made high speed, color labeling machine.Confidence is high that the new machine will help rescueUGfrom sharply declining profitability.UG's chief operating officer, Dan Brickley has been under fire for not reaching the company's performance goals of achieving a rate of return on assets of at least 12%.The afternoon of his return, Brickley called Sharon Smith, the controller, into his office.

Brickley: I wish you had been able to go.We have some accounting issues to consider.

Smith: I wish I had been there too.What are the accounting issues?

Brickley: They discussed accepting our notes at the going rate for a face amount of $12.5 million.We also discussed financing with stock.

Smith: I thought we agreed; debt is the way to go for us now.

Brickley: Yes, but I've been thinking.We can issue shares for a total of $10 million.The labeler is custom made and doesn't have a quoted selling price, but the domestic labors we considered went for around $10 million.It would help our rate of return if we keep the asset base as low as possible.

1.How will Brickley's plan affect the return measure?

2.What accounting issue is involved?

3.Is the proposal ethical? Why or why not?

4.Who would be affected if the proposal is implemented?