Blue Vistas Energy Co. is in its third year of operations, and the company has grown. To expand the business, Blue Vistas borrowed $15 million from Bank of Forest Lake. As a condition for making this loan, the bank required that Blue Vistas maintain a current ratio of at least 1.50 and a debt ratio of no more than 0.50. If Blue Vistas does not maintain at least the minimum level of these two ratios, it will have to pay back its loan immediately. Business recently has been worse than expected. Expenses have brought the current ratio down to 1.47 and the debt ratio up to 0.51 at December 15. Danielle Preston, the general manager, is thinking about what will happen if this current ratio is reported to the bank. Preston is considering recording some revenue on account this year that Blue Vistas will actually earn next year. The contract for this job has been signed, and Blue Vistas will deliver the natural gas during January of next year. If this revenue is recorded just one month early, Blue Vistas will be in compliance with the bank’s ratio requirements.

Requirements

1. Journalize the revenue transaction (without dollar amounts), and indicate how recording this revenue in December would affect the current ratio and the debt ratio.

2. Analyze this transaction according to the Decision Framework for Making Ethical Judgments in Chapter 1:

a. What is the issue?

b. Who are the stakeholders, and what are the alternatives? Weigh them from the standpoint of economic, legal, and ethical implications.

c. What decision would you make?

3. Propose an ethical course of action for Blue Vistas.