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2 pages/β‰ˆ550 words
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Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Essay
Language:
English (U.S.)
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Topic:

Accounting Problems and Ethical Considerations of Linbarger Company

Essay Instructions:

Scenario:
Imagine you are the assistant controller in charge of general ledger accounting at Linbarger Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly. At June 30, the cash balance is $80,000. You give this update to Lisa Infante, the financial vice president. Lisa is nervous and instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Lisa says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down, put us all out of our jobs!” Lisa continues, “I talked to Oconto Distributors (one of Linbarger’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”
Questions
What is the accounting problem that the Linbarger Company faces?
What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?
Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.

Essay Sample Content Preview:

Ethics in Accounting
Name
Institution
Ethics in Accounting
Question One: What is the accounting problem that the Linbarger Company faces?
Linbarger faces challenges in their cash management practices because they are not able to collect cash from their customers on time. If they had accelerated the collection process from Oconto Distributors, they would not need to keep their cash receipts book open. The company also has a longer cash conversion cycle, which has resulted in the delayed conversions of account receivables into cash. A shorter cash conversion cycle ensures that a company has higher free cash flow (Platt, 2010). This would have ensured that Linbarger has a cash balance that meets the loan agreement requirement.
Question Two: What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
One of the ethical considerations, in this case, is fraudulent financial reporting. Fraudulent financial reporting is a financial fraud that results from manipulation of financial statements (Klapproth, 2010). In this case, Linbarger does not want to disclose financial information that is significant to the lender. In addition, by keeping the cash receipts book open past the due date, we are in violation of the specific time period principle since we want to report the check as received before 30th June yet we will actually receive it past that date. The company is also in violation of the disclosure principle, and as such, fails in following the GAAP guidelines. All these violations are against the accounting code of ethics, which makes them ethical considerations.
Question Three: What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?
Failure to follow these instructions can result in default of our loan agreement since the books will close with a deficit of $120,000, which may prompt the insurance company to penalize us. There is also the possibilit...
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