Moss Exports is having a bad year. Net income is only $ 60,000. Also, two important overseas

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Moss Exports is having a bad year. Net income is only $ 60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company’s financial statements. Moss’s bank closely examines cash flow from operating activities. Daniel Peavey, Moss’s controller, suggests reclassifying the ­receivables from the slow-paying clients as long-term. He explains to the board that removing the $ 80,000 increase in accounts receivable from current assets will i­ncrease net cash provided by operations. This approach may help Moss get the loan.

Requirements
1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
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Horngrens Financial and Managerial Accounting

ISBN: 978-0133255584

4th Edition

Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura

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