Ethics Case Team E

Ethics Case Team E

BYP8-6: You are the assistant controller in charge of general ledger accounting at Riverside Bottling Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly.

At June 30 the cash balance is $80,000, which you report to Gena Schmitt, the financial

Vice President. Gena excitedly instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Gena says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down; put us all out of our jobs!” Gena continues, “I talked to Oconto Distributors (one of Riverside’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”

Instructions:

(a) Who will suffer negative effects if you do not comply with Gena Schmitt’s instructions? Who

will suffer if you do comply?

As an assistant controller I have an ethical responsibility to document and close the books as of June 30. I will suffer the consequences initially but in the end this is the right thing to do. I do not know for sure Onconto Distributors have indeed sent the check for $150,000.00. If they did send the check I can’t rely on the mail for it to be delivered the next day.

Gena is speculating the insurance company will shut them down, she does not know for sure this scenario will happen.