As its year-end approaches, it appears that Mendez Corporation's net income will increase 10% this year. The

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As its year-end approaches, it appears that Mendez Corporation's net income will increase 10% this year. The president of Mendez Corporation, nervous that the stockholders might expect the company to sustain this 10% growth rate in net income in future years, suggests that the controller increase the allowance for doubtful accounts to 4% of receivables in order to lower this year's net income. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate of growth for Mendez Corporation in future years. The controller of Mendez Corpora- tion believes that the company's yearly allowance for doubtful accounts should be 2% of receivables.


Instructions

(a) Who are the stakeholders in this case?

(b) Does the president's request pose an ethical dilemma for the controller?

(c) Should the controller be concerned with Mendez Corporation's growth rate in estimating the allowance? Explain your answer.

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  book-img-for-question

Accounting Tools for Business Decision Making

ISBN: 978-1118096895

6th edition

Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso

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