Purchase Commitments

Prophet Co. signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market value is $250 per thousand board feet. At this rate, the market price is $5,000,000. Jerry Herman, the controller, wants to recognize the loss in value on the year-end financial statements, but the financial vice president, Billie Hands, argues that the loss is temporary and should be ignored. Herman notes that market value has remained near $250 for many months, and he sees no sign of significant change.

INSTRUCTIONS

1. What are the ethical issues, if any?
2. Is any particular stakeholder harmed by the financial vice president's decision?

1.) So first assess what us going on here and clarify what years we are talking about, as in this year or next year.

2.) Is this contract, this timber, than being considered as inventory?

3.) Now low prices have been for, MONTHS, and then might we a good question to ask as to how the market has fluctuated for longer periods of time.

4.) What stakeholders are then affected by the decision to be made or not made here.

5.) Is either guy truly right or truly wrong in how they are thinking.What should the controller do?