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Chapter 16: 5RQ (page 884)
List the four IMA standards of ethical practice, and briefly describe each.
The four IMA standards for ethical practice are competence, confidentiality, integrity, and credibility.
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Computing cost of goods sold, merchandising company
Use the following information for The Windshield Helper, a retail merchandiser of auto windshields, to compute the cost of goods sold:
Web Site Maintenance $ 7,900
Delivery Expense 400
Freight In 2,400
Purchases 47,000
Ending Merchandise Inventory 5,500
Revenues 63,000
Marketing Expenses 10,700
Beginning Merchandise Inventory 8,600
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
b. Cost of computer software to track WIP Inventory
Describe a merchandising company, and give an example.
Identifying product costs and period costs Classify each cost of a paper manufacturer as either a product cost or a period cost:
g. Depreciation on the manufacturing plant.
Question:Applying ethical standards
Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company鈥檚 five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing \(13,000 in invoices until January 1.
b. Record as sales \)115,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of the next year鈥檚 sales are included in this year鈥檚 sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company鈥檚 continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. How might these inconsistencies affect the company鈥檚 creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
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