ETHICS CASE

As its year-end approaches, it appears that Mendez Corporation’s net income will increase 10% this year. The president of Mendez Corporation, nervous that the stockholders might expect the company to sustain this 10% growth rate in net income in future years, suggests that the controller increase the allowance for doubtful accounts to 4% of receivables in order to lower this year’s net income, which reflects a 6% growth rate, will be a more sustainable rate of growth for Mendez Corporation in future years. The controller of Mendez Corporation believes that the company’s yearly allowance for doubtful accounts should be 2% of receivables.

QUESTIONS:

  • Who are the stakeholders in this case?
  • Does the president’s request pose an ethical dilemma for the controller?

 

  • Should the controller be concerned with Mendez Corporation’s growth rate in estimating the allowance? Explain your answer in full detail.

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