[The following information applies to the questions displayed below.]
“It’s impossible! There is no justification for ignoring these entries.” These are the words spoken by Jackie Bauman at a meeting with the CFO of the company, Glen Donner.
Cumberland Lumber is a regional company and privately owned by members of the Simon family. Jackie is the chief internal auditor at Cumberland Lumber, a large lumber liquidator in the Cumberland Valley of Pennsylvania. While she does not report directly to Glen Donner, the culture of the company is such that Glen makes the final call on accounting issues because he has CEO Larry Simon’s ear.
The issue being discussed between Jackie and Glen is whether a variety of year-end accruals should be recorded. These include:
Accrual for future vacation pay of $50,000.
Allowance for repairs and maintenance, $70,000.
Reserve for inventory obsolescence, $80,000.
The total amount of $200,000 is 25 percent of earnings for the year.
Jackie provides the following reasons for recording these amounts:
The accrual for vacation pay is based on a commitment to employees to pay these amounts so long as they use their vacation hours by the end of the following calendar year.
The allowance for repairs is an annual adjustment to reserve for future repair costs on machinery and equipment.
The reserve for inventory obsolescence is a new item but reflects the failure of the company to get rid of certain lumber products that have been on the books for almost two years.
Glen counters Jackie’s explanation as follows.
Employees may not take vacation time next year because the employment market is tight and there is an economic recession, so they may not want to leave, even for a week or two, for fear of losing their job.
Repairs and maintenance are discretionary expenditures, and there is no reason to accrue for them.
The “obsolete” inventory will be sold to a buyer who is willing to take it off the company’s hands so Glen suggests waiting until it is sold at that time for scrap value.
As a CPA, Jackie feels comfortable with her knowledge of the accounting rules. She tries to discuss her differences with Glen using this perspective. She also explains her ethical obligations. Glen simply tells Jackie to make the entries if she wants to keep her job.
Questions:
1. Glenn concludes by threatening Jackie’s employment with Cumberland. In doing so, he fails to display _______________, which if properly done would result in _________________.
a. value leadership, valued employees
b. transformational leadership, ethical employees
c. transformational leadership, followership
d. ethical leadership, ethical employees
2. Individuals look to role models in their work. People may or may not adopt ethical behavior as evidenced by ethical leadership or anti-social behaviors. This process is known as which of the following?
a. Fellowship
b. Leadership
c. Social learning
d. Transformational leadership
3. Glenn is displaying much of the same characteristics seen in other leaders mentioned in previous chapters. His suggestions to Jackie most resemble those from which of the following?
a. Diem-Thi Le
b. Anthony Menendez
c. Dunlap
d. Cynthia Cooper