You were recently hired to work in the controllers office of the Balboa Lumber Company. Your boss, Alfred Eagleton, took you to lunch during your first week and the following discussion took place. Things have been a little bit slow lately, and we need to borrow a little cash to tide us over. Our inventory had been building up and the CFO wants to pledge the inventory as collateral for a short-term loan. But I have a better idea. Mr. Eagleton went on to describe his plan. On July 1, 2013, the first day of companys third quarter, we will sell $100,000 of inventory to the Harbaugh Corporation for $160,000. Harbaugh will pay us immediately and then we will agree to repurchase the merchandise in two months for $164,000. The $4,000 is Harbaughs fee for holding the inventory and for providing financing. I already checked with Harbaughs controller and he has agreed to the arrangement. Not only will we obtain the financing we need, but the third quarters before-tax profits will be increased by $56,000, the gross profit on the sale less the $4,000 fee. Please go research the issue and make sure we would not be violating any specific accounting standards related to product financing arrangements.

1. Discuss the ethical implications of your boss suggestion: be specific in this part. As an example, you may discuss what provisions of the Framework will be violated and why, or you can touch on any other aspects of the investors decision-making process. (10 points)