Question
Moss Exports is having a bad year. Net income is only $60,000. As well, two important overseas customers are falling behind in their payments to Moss and Moss's accounts receivable are ballooning
The company desperately requires a loan. The Moss Exports board of directors is considering behaviors to put the best face on the company's financial statements. Moss's bank closely observes cash flow from operations. Moss's controller, Daniel Peavey, suggests reclassifying as long-term the receivables from the slow-paying clients. He describes to the board that removing the $80,000 increase in accounts receivable from current assets will increase net cash provided by operations. This approach may support Moss get the loan
1 Using only the amounts given calculate net cash provided by operations, both without as well as with the reclassification of the receivables. Which reporting makes Moss look better?
2 Under what situation would the reclassification of the receivables be ethical? Unethical? Assists your response