DISCUSSION BOARD: ACCOUNTING

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For this collaborative discussion board, the instructor will place you into a group at the beginning of the course. You will create a thread in response to the provided prompt for each forum. Each thread must be at least 500 words and demonstrate course-related knowledge. You must support your assertions with at least 2 citations other than the textbooks; the Bible may be 1 of those sources. The composition must be attached as a word document within a new thread of the forum.

 

Note: Due to constant updates and revisions, you must always consult the most current style guide in completing citations and formatting. The sample provided is the work of a student and must not be used as an official sample.

 

1. Read Ethics Case 9-11 and answer it, considering also the biblical implications of the situation.

 

Ethics Case 9–11 Overstatement of ending inventory

LO9–7

Danville Bottlers is a wholesale beverage company. Danville uses the FIFO inventory method to determine the cost of its ending inventory. Ending inventory quantities are determined by a physical count. For the fiscal year-end June 30, 2018, ending inventory was originally determined to be $3,265,000. However, on July 17, 2018, John Howard, the company’s controller, discovered an error in the ending inventory count. He determined that the correct ending inventory amount should be $2,600,000.

Danville is a privately owned corporation with significant financing provided by a local bank. The bank requires annual audited financial statements as a condition of the loan. By July 17, the auditors had completed their review of the financial statements which are scheduled to be issued on July 25. They did not discover the inventory error.

John’s first reaction was to communicate his finding to the auditors and to revise the financial statements before they are issued. However, he knows that his and his fellow workers’ profit-sharing plans are based on annual pretax earnings and that if he revises the statements, everyone’s profit-sharing bonus will be significantly reduced.

Required:

1. Why will bonuses be negatively affected? What is the effect on pretax earnings?

2. If the error is not corrected in the current year and is discovered by the auditors during the following year’s audit, how will it be reported in the company’s financial statements?

3. Discuss the ethical dilemma John Howard faces.