Accounting Problem Faced by Linbarger Company Paper Example

Introduction

The company is under obligation to maintain a monthly cash account balance of at least $200,000 in their books as per their agreement with an insurance company. Since the cash balance available at the end of the month is only $80, 000, the company is faced with the problem of meeting the agreement with the insurance company. The company has to find a way of maintaining the cash balance of at least $200,000 to avoid defaulting and possible consequences that will follow.

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Ethical considerations in the case

The company had gotten a loan and agreed with an insurance company to maintain a cash balance of at least $200,000. The company is faced with an ethical dilemma since it is the end of the month and the cash balance is only $80,000 suggesting that there is a shortage of $120,000. The company is under obligation to report accurate cash balance to the insurance company. However, reporting an amount that is less than the agreed one will result in unfavorable consequences. Since there is an agreement to report the exact cash balance at the end of the month, the company should report it. This is an ethical consideration since the alternative is an unethical practice. A company must stick to ethical standards at all times. Apart from reporting the exact amount of the cash balance, the company is also expected to raise at least $200,000. Since the amount is less than the agreed minimum cash balance that should be reported at the end of the month, the company should strive to comply. This is an ethical consideration since failure to raise the agreed amount of $200,000 is unethical. Therefore, two major ethical considerations are reporting accurate cash balance at the end of every month, and also striving to meet the $200,000 threshold.

Negative consequences of not following Lisa Infante's instructions

Lisa Infante suggested that the cash receipts book should be left open for an extra day to allow the recording of the $150,000 check from a distributor. Failure to follow the instruction means that only $80,000 would be declared. Since the amount declared would be less than the balance that was agreed with the insurance company, it will imply that Linbarger Company has defaulted. Once the insurance company get to know this, it will close down Linbarger Company. Linbarger employees will lose jobs. Lisa is a senior employee in the company, and a junior employee who fills to follow her advice may be interpreted as an act of sabotage. Disciplinary measures may be taken against me which may even include dismissal from the job.

Negative impacts of compliance

Compliance in this context means making disclosures on June 30th. In this case, the anticipated amount of $150,000 will be excluded from the report. As an assistant control lower, I will be negatively affected by the closure of the company by the insurance company means I will lose the job. Similarly, Lisa and other employees of the company will also lose the job. The distributors will also be negatively affected since the business with the company may come to a halt. Since the $150,000 will not be included in the cash receipts, the insurance company will also lose revenue if it decides to close down Linbarger Company.

Alternative

Faced with this ethical dilemma, it is important to find alternative solutions. The best decision is the one that ensures the disclosure is adequate, and that there are honesty and integrity in the financial report given to the insurance company at the end of the month. One idea is to discuss with Lisa if the distribution company can issue a check worth $120,000 the same day and $30,000 later to comply with the agreement made with the insurance company. This will help in compliance with the agreement, and it will demonstrate financial honesty and integrity.