Richard's Dilemma
Bongo Plus was formed in February 2014 with the goal of selling advertising trinkets to local businesses. Bongo Plus is a small, privatelyheld company that does not yet have a Board of Directors. Bongo's main competitive advantage is that the company is local and the founder and president, David Fritz, is well known and trusted in the local business community. He worked in corporate advertising before starting Bongo Plus. Fritz hired Lisa Stone to run Bongo Plus. Richard Temple, an accountant who holds both the CPA and CMA certifications, was hired by Lisa to set up a computerized system to track incoming orders, inventory, sales, cash receipts and payments for the business. Bongo Plus raised $500,000 from local investors to begin operations. These investors were given an equity state in the company in return for their investment. From the very beginning the investors were concerned with the company's ability to attract repeat customers and earn profits. However, $99,725 net income had been recorded in the company's first year which ended January 31, 2015. This relieved most of the investor's concern about the company's ability to be an ongoing business.
Since the company was not public, no independent yearend audit was done. In late February, 2015 Temple discovered that over $175,685 in accrued expenses had not been recorded at year end. Had these liabilities been recorded the company's $99,725 profit would have really been a $22,185 loss. Temple approached Lisa with this information and told her the yearend financial statements needed to be corrected. Lisa was adamant that this could not be done under any circumstances. Her reasoning was that new customers were being acquired on a daily basis and sales for the current fiscal year would be substantially higher than last year. Therefore, the current year would be able to absorb the accrued liabilities not recognized in the previous year and still show a nice profit. She feared that if the financial statements were restated the investors, who were not all that savvy when it came to understanding financial statements, would panic at the loss and shut the business down, putting both Lisa and Richard out of work.
What should Richard Temple do?
Read the case Richard's Dilemma which can be found by clicking here. After reading the case you are to come up with three possible scenarios of what Richard should do. Each scenario should clearly state Richard's course of action as well as the advantages and disadvantages of such action. After presenting the three possible scenarios you are to pick one as a recommended course of action and justify why you feel this course is the one Richard should choose. Your grade will be determined by your analysis of the advantages and disadvantages of the scenarios as well as your justification of which scenario Richard should pursue.