Assignment 2: Ethical Issue: Reclassification of Receivables

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Assignment
2: Ethical Issue: Reclassification of Receivables

Respond to the following ethical issue concerning the
reclassification of receivables in your initial post:

Moss Exports is having a bad year. Net income is only $60,000.
Also, two important overseas customers are falling behind in their payments to
Moss, and Moss’s accounts receivable are ballooning.

The company desperately needs a loan. The Moss Exports board of
directors is considering ways to put the best face on the company’s financial
statements. Moss’s bank closely examines cash flow from operations. Daniel
Peavey, Moss’s controller, suggests reclassifying as long-term the receivables
from the slow-paying clients. He explains to the board that removing the
$80,000 rise in accounts receivable from current assets will increase net cash
provided by operations. This approach may help Moss get the loan.

1.Using only the amounts given, compute net
cash provided by operations, both without and with the reclassification of the
receivables. Which reporting makes Moss look better?
2.Under what condition would the
reclassification of the receivables be ethical? Unethical? Support your
response.

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