Question:
Horizon Corporation manufactures personal computers. The company began operations in 2004 and
reported profits for the years 2008 through 2011. Due primarily to increased competition and price
slashing in the industry,
2012’s income statement reported a loss of $20 million. Just before the end of the 2013 fiscal year, a
memo from the company’s chief financial officer to Jim Fielding, the company controller, included the
following comments:
If we don’t do something about the large amount of unsold computers already manufactured, our auditors
will require us to write them off. The resulting loss for 2013 will cause a violation of our debt covenants
and force the company into bankruptcy. I suggest that you ship half of our inventory to J.B. Sales, Inc., in
Oklahoma City. I know the company’s president and he will accept the merchandise and acknowledge the
shipment as a purchase.
We can record the sale in 2013 which will boost profits to an acceptable level. Then J.B. Sales will simply
return the merchandise in 2014 after the financial statements have been issued.
Required:
Discuss the ethical dilemma faced by Jim Fielding.
Answer:
Discussion should include these elements.
Facts:
Horizon Corporation, a computer manufacturer, reported profits from 2008 through 2011, but reported a
$20 million loss in 2012 due to increased competition. The chief financial officer (CFO) circulated a
memo suggesting the shipment of computers to J.B. Sales, Inc., in 2013 with a subsequent return of the
Horizon Corporation manufactures personal computers. The company began operations in 2004 and
reported profits for the years 2008 through 2011. Due primarily to increased competition and price
slashing in the industry,
2012’s income statement reported a loss of $20 million. Just before the end of the 2013 fiscal year, a
memo from the company’s chief financial officer to Jim Fielding, the company controller, included the
following comments:
If we don’t do something about the large amount of unsold computers already manufactured, our auditors
will require us to write them off. The resulting loss for 2013 will cause a violation of our debt covenants
and force the company into bankruptcy. I suggest that you ship half of our inventory to J.B. Sales, Inc., in
Oklahoma City. I know the company’s president and he will accept the merchandise and acknowledge the
shipment as a purchase.
We can record the sale in 2013 which will boost profits to an acceptable level. Then J.B. Sales will simply
return the merchandise in 2014 after the financial statements have been issued.
Required:
Discuss the ethical dilemma faced by Jim Fielding.
Answer:
Discussion should include these elements.
Facts:
Horizon Corporation, a computer manufacturer, reported profits from 2008 through 2011, but reported a
$20 million loss in 2012 due to increased competition. The chief financial officer (CFO) circulated a
memo suggesting the shipment of computers to J.B. Sales, Inc., in 2013 with a subsequent return of the
