Georgetown Motors is having a bad year. Net income is only $37,000 to date. Also, two important

Question:

Georgetown Motors is having a bad year. Net income is only $37,000 to date. Also, two important overseas customers are falling behind on their payments to Georgetown, and Georgetown’s accounts receivable are ballooning. The company desperately needs a loan. The Georgetown board of directors is considering ways to put the best face on the company’s financial statements. Georgetown’s bank closely examines the company’s cash flow from operations. Donna McDowell, Georgetown’s controller, suggests reclassifying as long-term the receivables from the slow-paying clients. She explains to the board that removing the $80,000 rise in accounts receivable from current assets will increase net cash provided by operations. This approach may help Georgetown get the loan.

Requirements

1. Using only the amounts given, calculate Georgetown’s net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes the company look better?

2. Identify the ethical issue(s).

3. Who are the stakeholders?

4. Analyze the issue from the

(a) Economic,

(b) Legal,

What is the potential impact on all stakeholders?

5. What should the board do?

6. Under what conditions would reclassifying the receivables be considered ethical?

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,... 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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