Week 1 Chapter 13-8 (ACCT-311)

Week 1 Chapter 13-8 (ACCT-311) - The owner of Bleacher Mall...

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C LASS C ONFERENCES : C ONCEPTS F OR A NALYSIS Week #1 Chapter 13 (CA 13-8): – Warranties Question: The Dotson Company, owner of Bleacher Mall, charges Rich Clothing Store a rental fee of $600 per month plus 5% of yearly profits over $500,000. Matt Rich, the owner of the store, directs his accountant, Ron Hamilton, to increase the estimate of bad debt expense and warranty costs in order to keep profits at $475,000. Instructions: A) Should Hamilton follow his boss’s directive? B) Who is harmed if the estimates are increased? C) Is Matt Rich’s directive ethical? Answer: A) Ron Hamilton should not follow his boss’s directive. Not only is it unethical but it can cause major problems not only for the company but Hamilton would be directly involved in altering any of the company’s financial statements. The changes in the two accounts would affect the net profit of the company which would make it look like the company isn’t doing as good as it should be doing. B)
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Unformatted text preview: The owner of Bleacher Mall, Dotson Company, would be losing income made from the 5% of yearly profits of over $500,000. It can eventually harm Rich Clothing Store if Dotson isn’t receiving enough income to maintain the mall or renovate it if the mall needs it. Any shareholder’s of Rich Clothing Store are affected by the increase in debt debts and warranty costs. It’ll reflect on the company’s net profits and again make Rich Clothing Store look bad to their shareholders. If Hamilton goes along with Rich’s directive, it would hurt his ethical beliefs and other harm could come along if they continue to alter the debts and warranty costs. C) Matt Rich’s directive is no way ethical in any way. Although it might look good for the company, altering any thing in the books just to keep from paying a fee for any profits over $500,000. It’s not fair to the Dotson Company and any stockholders’ involved with the company....
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Week 1 Chapter 13-8 (ACCT-311) - The owner of Bleacher Mall...

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