Choose one of the ethics challenge prompts from below:
BTN 1-1 You’re the managerial accountant at Infostore, a manufacturer of hard drives. Its reporting year-end is December 31. The CFO is concerned about having enough cash to pay the expected income tax bill because of poor cash flow management. On Nov. 15, the purchasing dept. purchased excess inventory of raw materials in anticipation of rapid sales growth beginning in January. The CFO tells you to record the purchase of raw materials as an expense in the current year; this would decrease the company’s tax liability by increasing expenses and reducing income.
1. In which account should the purchase of raw materials be recorded?
2. How should you respond to this request by the CFO?
BTN 7-1 The budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called “use it or lose it”. The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system.
–Write a report to a local not-for-profit organization or government agency offering a solution to the “use it or lose it” budgeting problem.
