Reference no: EM132427943
Question - Skyline Inc. manufactures personal computers. The company began operations in 2013 and reported profits for the years 2013 through 2016. Due primarily to increased competition and price slashing in the industry, 2017's income statement reported a loss of $20 million. Just before the end of the 2018 fiscal year, a memo from the company's chief financial officer to Jan Felix, the company controller, included the following comments:
If we don't do something about the large amount of unsold computers already manufactured, our auditors will require us to write them off. The resulting loss for 2018 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to A.C. Sales, Inc., in Kansas City. I know the company's president and he will accept the merchandise and acknowledge the shipment as a purchase. We can record the sale in 2018 which will boost profits to an acceptable level. Then A.C. Sales will simply return the merchandise in 2019 after the financial statements have been issued.
Discuss the ethical dilemma faced by Jan Felix.
If there is no ethical dilemma, explain why not.
What would you advise Jan Felix to do?
What position, department or outside parties would be affected by this situation?
Are there any citations in the FASB Codifications that could support your position?
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