Question 1 -
A manager of a small electronics stores would like to expand and also sell computers. The expansion would require seeking a loan from a local bank. The manager knows net income for this year is lower than what is needed to qualify for additional financing at his current bank. The manager also realizes some of the estimates used to calculate net income could be adjusted to make net income come within the qualifying range for an additional loan. Discuss three or more of the following questions:
- On the income statement, overstating bad debt expense will result in what impact on operating expenses, net income, allowance for bad debts, accounts receivable?
- To qualify for the bank loan, the manager should or should-not over/under estimate bad debt? Why?
- Is intentionally misstating and estimate ethical? Why or why not?
- Is intentionally misstating and estimate illegal? Why or why not?
- List some possible consequences if bank officials detect the misstatement of the estimate.
- Discussion some ways the misstatement of uncollectible account expense could be detected by bank officials.
Question 2 -
A manager of men's clothing store receives a bonus based on the amount of gross profit earned by the department. This year the manager is only two thousand dollars short from qualifying for a sizable year-end bonus. The manager is in a position to have a portion of the inventory counted twice in the year-end physical inventory count. Cost of goods sold is adjusted for any changes to year-end inventory. Discuss three or more of the following questions:
- On the balance sheet, double counting a portion of ending inventory will result in what impact on ending inventory, total assets, cost of goods sold, gross profit?
- To qualify for the year-end bonus, the manager should or should-not double count over two thousand dollars of ending inventory? Why?
- Is intentionally double counting ending inventory ethical? Why or why not?
- Is intentionally double counting ending inventory illegal? Why or why not?
- List some possible consequences if upper management detects double counting of ending inventory.
- Discussion some ways the double counting of inventory could be detected by management.