978-0132109178 Chapter 1 Solution Manual Part 2

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1-28 (30 min.) Pharmaceutical company, budgeting, ethics.

1. The overarching principles of the IMA Statement of Ethical Professional Practice are

Honesty, Fairness, Objectivity and Responsibility. The statement’s corresponding “Standards for

Ethical Conduct…” require management accountants to

• Perform professional duties in accordance with relevant laws, regulations, and

technical standards.

The other “year–end” actions occur in many organizations and fall into the “gray” to

“acceptable” area. Much depends on the circumstances surrounding each one, however, such as

the following:

a. Stop all research and development efforts on the drug Lyricon until after year-end.

This change would delay the drug going to market by at least six months. It is also

2. While it is not uncommon for companies to sacrifice long-term profits for short-term

gains, it may not be in the best interest of the company’s shareholders. In the case of

PharmaCor, the CFO is primarily concerned with “maximizing shareholder wealth” in the

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his profession. Taking illegal and/or unethical action by capitalizing R&D to satisfy the demands

of his new supervisor, James Clark, is unacceptable. Although not strictly unethical, I would

recommend that Johnson not agree to slow down the R&D efforts on Lyricon or sell off the

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1-29 (30–40 min.) Professional ethics and end–of-year actions.

1. The possible motivations for the snack foods division wanting to take end-of-year actions

include:

(a) Management incentives. Gourmet Foods may have a division bonus scheme based on

one-year reported division earnings. Efforts to front-end revenue into the current year

2. The “Standards of Ethical Conduct . . . ” require management accountants to

• Perform professional duties in accordance with relevant laws, regulations, and

technical standards.

• Refrain from engaging in any conduct that would prejudice carrying out duties

ethically.

the following:

(a) If the independent contractor does not do maintenance work in December, there is no

transaction regarding maintenance to record. The responsibility for ensuring that

packaging equipment is well maintained is that of the plant manager. The division

controller probably can do little more than observe the absence of a December

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Each of the (a), (d), (e), and (g) “end-of-year actions” may well disadvantage Gourmet Foods in

the long run. For example, lack of routine maintenance may lead to subsequent equipment

3. If Taylor believes that Ryan wants her to engage in unethical behavior, she should first

directly raise her concerns with Ryan. If Ryan is unwilling to change his request, Taylor should

discuss her concerns with the Corporate Controller of Gourmet Foods. She could also initiate a

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1-30 (30 min.) Professional ethics and end-of-year actions.

1. The possible motivations for Controller, Todd Allen to modify the division’s year-end

earnings are:

(i) Job security and promotion. The company’s CFO will likely reward him for meeting the

2. The overarching principles of the IMA Statement of Ethical Professional Practice are

Honesty, Fairness, Objectivity and Responsibility. The statement’s corresponding “Standards for

Ethical Conduct…” require management accountants to

• Perform professional duties in accordance with relevant laws, regulations, and technical

standards.

(d) Reversing the division’s Allowance for Bad Debt Expense would violate Generally

Accepted Accounting Principles unless the bad debt allowance is currently overstated.

Recording this transaction would result in an overstatement of income and could

potentially mislead investors.

(e) Booking advertising revenues that relate to January in December falsely reports next

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(b) Selling the new printing equipment that was purchased in January and replacing it with

discarded equipment from one of the company’s other divisions. The previously

discarded equipment no longer meets current safety standards. Again, while this method

may result in a short-term solution for the Controller and the Production Manager

3. Allen should directly raise his concerns first with the CFO, especially if the pressure from

the CFO is so great that the only course of action on the part of the controller is to otherwise

behave unethically. If the CFO refuses to change his direction, then the controller should raise

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1-31 (40 min.) Global company, ethical challenges.

1. The overarching principles of the IMA Statement of Ethical Professional Practice are

Honesty, Fairness, Objectivity and Responsibility. The statement’s corresponding “Standards for

Ethical Conduct…” require management accountants to

• Perform professional duties in accordance with relevant laws, regulations, and technical

standards.

effort.

2. The amount of revenue can by objectively measured.

4. The eventual collection of the cash is reasonably assured.

Because criteria 1 and 3 have not been met at the time the order is placed the revenue should not

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“acceptable” area. Much depends on the circumstances surrounding each one, however, such as

the following:

a. Stop all transatlantic shipping efforts. The start-up costs for the new operations are

hurting current profit margins. While this method may result in better short-term

financial results for Bredahl, it may do harm to the long-term financial condition of the

2. It is possible that any of the “year–end” actions that fall into the “gray” area may be good

for investors, depending on the credible evidence which supports the management decision. For

example, replacing owned equipment with leased equipment may result in both short-term gains

for the company and long-term cost reduction. If so, this decision would be in the best interest of