AC 499 Stanford University Unit 10 Ethical Decision Financial Statements Discussion Discussion Topic 1: Ethical-Decision Making Read the scenario about St

AC 499 Stanford University Unit 10 Ethical Decision Financial Statements Discussion Discussion Topic 1: Ethical-Decision Making

Read the scenario about Stacy Lynn, Inc. After you complete the reading respond to the following components:

Part A: If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, which costing method should be presented?

Part B: However, the bank requires that all financial statements conform to Generally Accepted Accounting Principles (GAAP). Based on that requirement, which costing method should be presented?

Part C: The bank has delivered a memo in preparation for the meeting to negotiate the Credit Line; the memo states that they will expect a significant Net Income. Based on your responses to Parts A and B, what are some of the legal and ethical issues that may be of importance to Stacy Lynn?

Just do response each posted # 1 to 3 down below only

Posted 1

Hello class and professor,

The absorption cost method will produce the highest operating income. Total absorption costing as it is requested to provides direct and overhead expense in product and service costs conforms to GAAP. Stacy has dishonestly accounted a significant income by absorbing her fixed costs inside of her unit costs. Stacy has altered these statements to make it look as though she does not need as much help as she is asking for.

Posted 2

If Stacy wants to show the maximum profit, she would use the Variable Costing Method; it inflates net income by excluding the fixed costs, thus reducing COGS. However, Stacy is required by the bank to prepare the financial statements in conformity with GAAP. The costing method required by GAAP is absorption costing, which “considers fixed and variable factory expenses as overhead” (Lohrey, 2017). Thus, Stacy wouldn’t be able to use the Variable Costing Method.

As for the memo, the issue is that Stacy is being told two seemingly different things. On the one hand, she is being asked to prepare the company’s financial statements in accordance with GAAP, yet on the other hand, she is being told that the bank expects a significant net income. This is a zero-sum game. If she does the one, she compromises the other. Stacy should prepare the financial statements in accordance with GAAP, using the aforesaid costing method.

Posted 3

Part A:

Patty should use variableethod of costing to show the bank maximum profit over the period of 2 years. It is so because variable costing method doesn’t take into account fixed manufacturing costs as a part of total product cost resulting in a lowet value of ending inventory. This results in lower cost of goods sold resulting in higher value of profits

Part B:

As per GAAP, the company should use full costing method. This is because the use of full costing method helps in ensuring that the value of a product is calculated at its complete cost, resulting in a more accurate costing and presentation of financial statements.

Part C:

Since bank requires the financial statements in accordance with GAAP, SLI is not in a position to show higher profits in order to obtain better terms of credit from the bank. If SLI prepares statements in accordance with variable costing method, the financial statements will not be accepted by bank for extending credit. Further, providing financial statements as per variable costing may not be considered legal by the bank as they will be considered as a violation of GAAP.

Imports from the Chinese market is a large problem for many industries and it is important that companies find ways to adapt in order to weather the economic hardships this can cause but it should not be at the expense of ethical accounting practices. SLI risks damaging their reputation within the financial community if they are not adhering to GAAP. AC499: Bachelors Capstone in Accounting | Unit 10
Unit 10 Discussion: Scenario
Stacy Lynn, Inc. (SLI) is a manufacturer of rice cookers. The rice cookers sell for $45 per unit; the sales were
3,600 units in the current year. SLI has 400 units available for sale at the end of the current year and is
projecting sales of 4,400 units next year. SLI is planning the same production level for the current year as last
year – 4,000 units. The variable manufacturing costs for SLI are $16 and the variable selling costs are only $.50
per unit. The fixed manufacturing costs are $100,000 per year and the fixed selling costs are only $500 per
year. Assume that beginning inventory was -0-.
Stacy Ann Lynn, the great granddaughter of the company’s founder is the current CEO/President of the
company, which is still a family-owned business. The past several years have been especially difficult due to
price-pressure from Chinese imports. At the moment, all that Stacy believes she can do is to try to keep the
company running until the economy improves. But, the company needs an immediate infusion of cash. So, she
has decided to ask her bank for a large line of credit to maintain operating viability for the foreseeable future.
Based on the information provided in the narrative above, and the financial statements below, post a response
to each Part below:
Part A) If Stacy Lynn wants to show the bank the maximum profit over the previous 2-year period, which
costing method should be presented?
Part B) But, the bank requires that all financial statements conform to Generally Accepted Accounting
Principles (GAAP). Based on that requirement, which costing method should be presented?
Part C) The bank has delivered a memo to SLI in preparation for the meeting to negotiate the Credit Line; the
memo states that they will expect a significant Net Income. Based on your responses to Parts A and B, what
are the legal and ethical issues facing Stacy Lynn?
Additional Financial Information for SLI:
Current Income Statement:
Item:
Using Full
Costing
Sales (4,400 x 45)
Using Full
Costing
Using Variable
Costing
$198,000
Using Variable
Costing
$198,000
Cost of Goods Sold:
Beg. Inv.
COGM
COGAS
End. Inv.
COGS
$ 16,400
$ 6,400
$ 164,000
64,000
180,000
70,400
0
0
180,400
Less Variable Selling & Admin Expenses
Gross Margin
Contribution Margin
70,400
$ 2,200
$ 17,600
$125,400
AC499: Bachelors Capstone in Accounting | Unit 10
Less Fixed Mfg. Costs
$ 100.000
Less Selling & Admin Costs
Variable
Fixed
Operating Income
$ 2,200
500
2,700
$ 14,900
500
100,500
$ 24,900
You must post your initial response to the Discussion Board before 11:59 p.m. (ET) on Saturday of the unit.
Then, you must respond to at least 2 of your colleagues by the end of the unit on Tuesday. These 3 separate
posts must be made on 3 different days.
Also, if the instructor asks a follow-up question to your post, your reply to that question will also qualify to
satisfy the requirements to make 2 response posts.
Note to Students: Please review the Discussion Board Checklist and the Discussion Board Grading Rubrics
supplied in the Unit 1 Discussion Board screen. Those files will be used for all Discussion Board assessments.
The files are also available for download in Course Resources.

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