Ethics

Name: SHI Wenjing

SID: 53064027

Case Title

Manipulation of MCI’s Allowance for Doubtful Accounts

Declaration

‘I confirm this is my own work and not copying from my classmate or any other sources without acknowledging’

What to do to deal with the excessive amount of bad debts, from the view of Walt, is the pinpoint of the case. One alternative is to move the balance of the delinquent accounts to the note receivables by signing the promissory notes, with interests. The second one is to accept the customers’ common stock instead of cash. Currently, Walt’s group lapped the payments, making several accounts share one payment. Also, they amortized the bad debt and write off only a portion to maintain the amount of bad debt written off under the set ceiling. He also convinced the accounting department to accept a check-in-the-mail. In which case, the check was considered as received and recorded even there was no real check received at that time.

The assumption is that the takeover artist will be involved so the takeover is the thing the top management wants to avoid. The major stakeholders identified are Walt, his new boss, current shareholders. As an individual, Walt would like to report the bad debt honestly, as he can gain considerable benefit from the takeover. Then his new boss may be replaced by a person chosen by the takeover artist. Also, the bad debt affects the profitability of the MCI. The current MCI shareholders are concerned about whether the company is making good money and they will be definitely affected by the takeover.

Analysis using the Role of Thumb

For both the current shareholders and the potential takeover artist or the potential acquirer, the Golden Rule saying, Walt should not manipulate bad debt expenses. Shareholders would like to know the real performance of the company to make wise decision, whether to stay at the company or to take out the money. The takeover artist and the potential buyer of the MCI want to make the...