Case 15-10 Stock Splits and Stock Dividends

A corporation may use stock splits and stock dividends to change the number of shares of its stock outstanding.

Required:

a. What is meant by a stock split effected in the form of a dividend?

b. From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend.

c. How should a stock dividend that has been declared but not yet issued be classified in a statement of financial position? Why?

Case 17-2 Ethical Dilemma

Barbara Montgomery is a first-year auditor for Coppers and Rose, a large public accounting firm. She has been assigned to the audit of Lakes Brothers, a clothing retailer with retail outlets throughout the United States. This audit has proved troublesome in the past, and during a staff meeting preceding the audit, Robert Cooley, the supervisor on the audit, says: 'We are going to be required to work several hours 'off-the-clock' each week until this audit is completed.' He also observes that the client is putting a great deal of pressure on the firm to maintain an acceptable level of fees.

Barbara has just been to staff training school, where it was emphasized that not charging a client for hours actually worked is a violation of Coppers and Rose's employment policy, a violation that could cause her to be dismissed. She also knows that only staff personnel are paid overtime and that supervisors are evalu¬ated on successfully completing audits within allowable budgets. Barbara dis¬cusses the issue with John Reed, a second-year staff accountant. John says, 'Don't worry, if you go along nobody will find out and Robert will give you a good evaluation.' John also says that Robert is very highly regarded by the senior members of the firm and is likely to be promoted to manager in the near future.

observes that the client is putting a great deal of pressure on the firm to maintain an acceptable level of fees.

Barbara has just been to staff training school, where it was emphasized that not charging a client for hours actually worked is a violation of Coppers and Rose's employment policy, a violation that could cause her to be dismissed. She also knows that only staff personnel are paid overtime and that supervisors are evaluated on successfully completing audits within allowable budgets. Barbara dis¬cusses the issue with John Reed, a second-year staff accountant. John says, "Don't worry, if you go along nobody will find out and Robert will give you a good evaluation." John also says that Robert is very highly regarded by the senior members of the firm and is likely to be promoted to manager in the near future.

Required:

a. Is it ethical for Barbara to work hours and not charge them to the client?

b. Use the six-step approach outlined in this chapter to resolve this ethical dilemma.