Warranties the Dotson Company, owner of Bleacher Mall, charges Rich Clothing Store a rental fee of $600 per month plus 5% of yearly profits over $500,000. Matt Rich, the owner of the store, directs his accountant, Ron Hamilton, to increase the estimate of bad debt expense and warranty costs in order to keep profits at $475,000.

Answer the following questions.

(a) Should Hamilton follow his boss’s directive?

(b) Who is harmed if the estimates are increased?

(c) Is Matt Rich’s directive ethical?