Shirt Co. is a subsidiary of Clothes Corp. The controller of Shirt Co. believes that the yearly allowance for doubtful accounts should be 2% of net credit sales. The president of Shirt Co., nervous that the shareholders might expect the company to sustain its current 10% growth rate, suggests that the controller increase the allowance for doubtful accounts by 4% of net credit sales. The president thinks that the lower net income (because of the increased bad debts expense) will be more sustainable for Shirt Co.
a). Who are the stakeholders in this case?
b). Does the president's request pose an ethical dilemma for the controller?
c). Should the controller be concerned with Shirt Co.'s growth rate in estimating allowance? describe your answer.