Course

ACCT 2540

Professor

Tammie Neeley

Created by

Susan Christensen, Nichole Hess, and Jessica Schwab

RE

Group Ethics Paper

First Mates Wholesale Boating Supply Company: Do or Dont

First Mates Wholesale Boating Supply Company (FMWSBS) has been in business
since the late 1970s. It was started by three former charter fishing boat mates, who
then sold their business to an investor group that kept the same name, as many
investors due they have a mission to continue with the increase on financial returns.
The President, Nick Pittman, was concerned with their financial standing coming into
the fourth quarter as they were going to fall short of their EPS figure by $.30. He
sent out an email to his management team asking them to come up with some
ideas to increase revenues and decrease costs.
His management team gathered together to come up with ideas to increase
revenues. Below are some of their ideas:

o Salary Increases are rescinded

o Hiring freeze
o Stop ad campaign, hold off accruing for and paying the bills we
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currently have for last months media runs.

Shipping next months orders before the end of the quarter
Asking customers to increase their orders at a discounted rate
New customers signing up
Reclassify expenditures as assets
Booking sales and orders before they are actually ordered
Relaxing credit screenings
Expending the length of depreciation

o Changing inventory reporting

o Supplemental letter to customer
o Cancelling business trips
As a result of the meeting with management, Jeremy Tomit, head of promotions and
marketing at Lake Products, suggested that they stop the ad campaign they had
been running and then also stop accruing for and paying the bills from the previous
months ads.

They would then look at whether to start the ad campaign again

depending on how the business was going and how the campaign had helped their
company.

I dont believe that it is ethical to discontinuing paying the bills for

something that has already occurred.

If the ad campaign was already run the

previous month then the bills for that month need to be paid. If the bills are for
future ads then they could be stopped. These unpaid bills would also have to be
recognized as liabilities.
Jeremy also suggested that they ship out the automatic replenishment orders earlier
than they normally did so that they would be recognized in a different quarters
earnings.

This is not ethical because you are then recognizing the revenue in a

different quarter, inflating your sales and revenue to possibly inflate your stock
prices. Revenue must be recognized in the proper period.
Jeremy was asked by John Newel, Vice president at Lake Products, to contact
customers and see if they would be willing to purchase additional items for a
discount that would then be held by the company until needed by the customers.
This would allow for sales to be recognized before the items have been shipped and
the rights of ownership have been passed on to the customers. This is unethical
and not in accordance with GAAP. Revenue cannot be recognized until the sale is
final.

Sara Horner of Lake Products discussed the influx of new boat owner members and
the fees for those memberships that were starting to come in. They would pay an
initial fee of $2,800 and a monthly fee of $100 which would increase revenue. This
would be a completely ethical part of the plan and a good way of increasing their
revenue stream.
Molly Jackson, of Deep Sea Fishing, spoke about the inventory they have on hand
and letting it decrease through their current year sales to shrink their ending
inventory.

This would have a positive effect on their current assets but may be

detrimental in the future if they are not replacing those items. If they have a big
order and dont have those items on hand they could potentially lose customers.
This is an ethical option but may not be a prudent option.
Miriam Arthur had delayed a few major customer shipments until this year causing
the inventory to be overstated the prior year. This also caused net profits to be
overstated in the current year.
Arthur also substantially increased the estimated uncollectible accounts-receivable
reserve that was then partially reversed last quarter. This causes a domino effect
within the financial statements. Once Arthur had changed the amount it had
overstated the amount in the uncollectible accounts receivables on the financial
statements the prior quarter and then may have understated the uncollectible
accounts receivable in the current quarter. We cannot tell the total effect without
seeing the financial statements.
I would recommend coming up with a code of ethics that the company knows and
practices. Having employees go through ethics training once hired on, makes sure
all employees are aware of the proper accounting principles.

I would also recommend not changing your accounting practices throughout the
year, a companys accounting needs to be consistent. Changing your accounting
principles mid-year is a red flag for an audit.
It is safe to say that the questionable ethical actions taken by the company in the
past year have created a hardship on the company to meet its financial goals.
Cutting corners to make your financial statements look good and then dealing with
the fall out later is not good ethical practice, it is fraudulent. An ethical mission
statement is a key component to staying within the federal ethics guidelines. It can
help the company from making further questionable ethical decisions such as
sending a shipment to a customer now whether or not they ordered the shipment
and then dealing with it in the future.