Bricker Graphics is a privately held company specializing in package labels. Representatives of the firm have just returned from Switzerland,
The afternoon of his return from Switzerland, Benson called Susan Sharp into his office. Susan is Bricker's Controller.
Benson: I wish you had been able to go. We have some accounting issues to consider.
Sharp: I wish I'd been there, too. I understand the food was marvelous. What are the accounting issues?
Benson: They discussed accepting our notes at the going rate for a face amount of $12.5 million. We also discussed financing with stock.
Sharp: I thought we agreed; debt is the way to go for us now.
Benson: Yes, but I've been thinking. We can issue shares for a total of $10 million. The labeler is custom-made and doesn't have a quoted selling price, but the domestic labelers we considered went for around $10 million. It sure would help our rate of return if we keep the asset base as low as possible.
1. How will Benson's plan affect the return measure? What accounting issue is involved?
2. Is the proposal ethical?
3. Who would be affected if the proposal is implemented?
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Chapter # 18
Section: Broadening Your Perspective
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Question Posted: July 05, 2013 07:27:39