Tim Michael, the chief executive officer of Kokomo Corporation, is very concerned about his company’s profitability. In the next few weeks, Kokomo will apply for a large loan from a local bank. This loan is needed to replace several pieces of outdated equipment on the company’s production line. Michael is worried that the loan will be rejected because Kokomo’s profits have been declining over the past two years. Profits are declining because Kokomo’s products cost more to produce than the comparable products of the company’s primary competitor. In turn, these higher production costs are due to Kokomo’s in efficient production equipment. To ensure that Kokomo receives the loan, Michael decides to over state the company’s sales and net income for its most recent fiscal year. In his own mind, Michael believes this decision is justified because if Kokomo obtains the loan and purchases the new equipment, he is almost certain that the company will generate sufficient profits and positive cash flows to repay the bank loan. ‘‘Besides,’’ Michael reasons, ‘‘if the loan isn’t obtained, the company may go under, leaving more than 100 people without jobs.’’
According to Tim Michael’s way of thinking, the ‘‘end justifies the means.’’ What would you do if you found yourself in Michael’s shoes? If you were almost certain that your company would be able repay the loan if granted, could you justify being dishonest to protect the jobs of the company’s employees? Do you believe that any other factors have entered into Michael’s decision to misrepresent Kokomo’s financial data? Explain.

  • CreatedMarch 27, 2015
  • Files Included
Post your question