Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Wisconsin Farms is a wholesaler of agricultural supplies. It has stockholders who have been paid a total of one million dollars in cash dividends for

Wisconsin Farms is a wholesaler of agricultural supplies. It has stockholders who have been paid a total of one million dollars in cash dividends for seven consecutive years. It has a board policy that requires that in order for this dividend to be declared, net cash provided by operating activities as reported in Wisconsin Farms' cash flow statement must exceed one million dollars. President and CEO Dwight Schruten's job is secure so long as he produces annual operating cash flows to support this dividend. At the end of the current year, controller Bigus Tuna presents Dwight Schruten with some disappointing news: The net cash provided by operating activities is calculated by the indirect method to be only $970,000. The president says to Bigus, "We must get amount above one million. Isnt there some way to increase operating cash flow by another $30,000?" Bigus answers, "These figures were prepared by my assistant. Ill go back to my office and see what I can do." The president replies, "I know you wont let me down, Bigus." Upon close scrutiny of the statement of cash flows, Mr. Tuna concludes that he can get the operating cash flows above $1 million by reclassifying a $60,000, two-year note payable listed in the financing activities section as "Proceeds from bank loan - $60,000." He will report the note instead as an "Increase in payables-$60,000" and treat it as an adjustment of net income in the operating activities section. He returns to the president, saying, "You can tell the board to declare their usual dividend. Our net cash flow provided by operating activities is $1,030,000." "Good man, Bigus! I knew I could count on you," exults the president. Address the following questions: Who are the stakeholders in this situation? Was there anything unethical about the presidents actions? Was there anything unethical about the controllers actions? Are the board members or anyone else likely to discover the misclassification?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Remote Auditing A Quick And Easy Guide For Management System Auditors

Authors: Denise Robitaille

1st Edition

1932828311, 978-1932828313

More Books

Students also viewed these Accounting questions

Question

121. If X is uniformly distributed on [1, 3], find the pdf of Y X2.

Answered: 1 week ago

Question

Discuss the steps in the progressive discipline approach.

Answered: 1 week ago

Question

Compare the different types of employee separation actions.

Answered: 1 week ago

Question

Assess alternative dispute resolution methods.

Answered: 1 week ago