You are an assistant in the accounting department of HasherElectronics, a small electronics retailer. Hasher has a loan thatrequires the company to maintain a minimum cash balance of $125,000, as reported on its year- end balance sheet. AlthoughHasher has struggled in recent years, as of yesterday it looked asthough Hasher would be able to meet this requirement. The cashbalance in Hasher's general ledger was $ 130,000 and the company'scredit manager was expecting to receive a $ 30,000 electronic fundstransfer that day on account from your biggest customer. Yourdepartment supervisor had been worried about meeting the loanrequirement, so she had delayed making payments to Hasher'ssuppliers for several days. But in anticipation of receiving theEFT, she decided yesterday to issue checks to suppliers totaling $15,000.
It is now the last day of the fiscal year and your supervisorapproaches you with a problem. Your big customer had backed out atthe last minute, indicating it had some financial issues to sortout before it can transfer money to Hasher. The supervisor says theonly way Hasher can meet its loan requirement is to put the $15,000 back into the Cash account and pretend as if the supplierchecks were not issued until after year- end. You questionedwhether this would be ethical. Her reply was, well, we don't reallyhave a choice. Either we do this, or we violate the terms of theloan agreement and possibly are forced to repay the loanimmediately. That could put us out of business. Think of all thepeople who would lose their jobs! Just make a journal entry todayto increase Cash and Accounts Payable. Then tomorrow we can reduceCash and Accounts Payable probably before many of our supplierseven get the checks we have written to them.
Required:
1. Who might suffer in the short term if you go along with yoursupervisor's request? What might happen in the future if you goalong with her request this time? If you do not go along, who mightsuffer in the short term and what could be the long-termconsequences?
2. You want to be loyal to your supervisor but honest to otherswho rely on your work. As an accounting assistant, which of theseconcerns should be most important? Why?
3. What alternative courses of action can you take? Which ofthese is best given the circumstances?
You are an assistant in the accounting department of HasherElectronics, a small electronics retailer. Hasher has a loan thatrequires the company to maintain a minimum cash balance of $125,000, as reported on its year- end balance sheet. AlthoughHasher has struggled in recent years, as of yesterday it looked asthough Hasher would be able to meet this requirement. The cashbalance in Hasher's general ledger was $ 130,000 and the company'scredit manager was expecting to receive a $ 30,000 electronic fundstransfer that day on account from your biggest customer. Yourdepartment supervisor had been worried about meeting the loanrequirement, so she had delayed making payments to Hasher'ssuppliers for several days. But in anticipation of receiving theEFT, she decided yesterday to issue checks to suppliers totaling $15,000.
It is now the last day of the fiscal year and your supervisorapproaches you with a problem. Your big customer had backed out atthe last minute, indicating it had some financial issues to sortout before it can transfer money to Hasher. The supervisor says theonly way Hasher can meet its loan requirement is to put the $15,000 back into the Cash account and pretend as if the supplierchecks were not issued until after year- end. You questionedwhether this would be ethical. Her reply was, well, we don't reallyhave a choice. Either we do this, or we violate the terms of theloan agreement and possibly are forced to repay the loanimmediately. That could put us out of business. Think of all thepeople who would lose their jobs! Just make a journal entry todayto increase Cash and Accounts Payable. Then tomorrow we can reduceCash and Accounts Payable probably before many of our supplierseven get the checks we have written to them.
Required:
1. Who might suffer in the short term if you go along with yoursupervisor's request? What might happen in the future if you goalong with her request this time? If you do not go along, who mightsuffer in the short term and what could be the long-termconsequences?
2. You want to be loyal to your supervisor but honest to otherswho rely on your work. As an accounting assistant, which of theseconcerns should be most important? Why?
3. What alternative courses of action can you take? Which ofthese is best given the circumstances?
