What is the accounting problem that the Linbarger Company faces?
The accounting problem faced by the Linbarger Company is that the cash balance available is $80,000 as at June 30 - meaning that the company has a short of $80,000. Moreover, the company requires $200,000 based on their signed loan agreement and thus, put the employees out of their jobs. The remaining issue on the accounting matter is the determination of how to treat the cheque acquired in transit amounting to $150,000 from their potential customer and is to be received by close of date tomorrow. It is unethical to account the cheque in transit the same as cash in hand. A high measure of ethics is essential for everyday work by both auditors and accountants (Armstrong, Ketz & Owsen, 2003). Potential shareholders and the users of financial statements base their thoughts on the company's financial statements because the information provided is essential for informed decision making on investment. The verification made by the auditors is vital as a representation of the fair and correct view of the company.
What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
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The ethical considerations comprise of the required amount of the cash balance that the company needs to maintain at the end of the month as $200,000. The rationale for the ethical consideration is that the loan agreement with the insurance company requires them to do so. The case means that if the company defaults in their loan agreement, then the closure of their operations is very feasible. Secondly, the closing of the book has to happen because of the requirements of the accounting principles. Nonetheless, Lisa as the financial vice president compelling me (assistant controller) to maintain the receipt book open for an extra day is another issue raised. The situation is an ethical consideration since $150,000 clears, it is recorded for June and thus, if any issues occur shortly, then the company's image would be tarnished making the shareholders suffer.
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?
What can happen as a negative impact for failure of following Lisa Infante's thoughts and instructions to post the balance is that a breach of contract would be uncovered by the Linbarger Company. The resulting negative impact would be an immediate repayment of the company’s loan needed by the insurance company. The situation would subject the Linbarger Company to huge burdens that would result in sale of the assets attached to the company. The result is operations crippled and hence, jobs lost in case of the employees. Nonetheless, if the case results to a very substantial financial crisis for the Linbarger Company, then foreclosure happens within that period.
Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
One of the groups that will be negatively impacted is the insurance company. The situation is that the insurance company because they expected all is well after offering the company a loan but to their surprise, they do not see it forthcoming. Secondly, the negatively impacted group are the financial statement users of Linbarger Company – financial controllers and the cashier, because the clarity of the books of accounts would expose them and suffer the consequences of the insurance company knowing the entire information of the company’s account. Nonetheless, the financial controller and the cashier are the immediate individuals who struck an agreement with the insurance company that the cash balance would be maintained at $200,000 by the end of every month.
What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.
An alternative to pursue regarding the scenario concerns Linbarger Company letting the insurance know more about the situation, and if there are any penalties, they should pay. The case makes the insurance company perceive Linbarger Company as an ethical company and have confidence. Then, more convenient and efficient terms would be struck after that. Another alternative would be Linbarger Company should address the issue to the insurance company and after that plead for a grace period for the proper settlement of the books of accounts. Also, as the finance controller, a short-term loan should be considered for two days and settle it as soon as clearance happens for distributors as at July 1 st .
Reference
Armstrong, M. B., Ketz, J. E., & Owsen, D. (2003). Ethics education in accounting: Moving toward ethical motivation and ethical behavior. Journal of Accounting education, 21(1), 1-16.
