ASH ACC 306 Week 5 Final Paper (Lease)
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Ethics Case 21–7 - Ben Naegle - Where’s the cash? ● LO1 LO3
After graduating near the top of his class, Ben Naegle was hired by the local office of a Big
4 CPA firm in his hometown. Two years later, impressed with his technical skills and
experience, Park Electronics, a large regional consumer electronics chain, hired Ben as
assistant controller. This was last week. Now Ben’s initial excitement has turned to distress.
The cause of Ben’s distress is the set of financial statements he’s stared at for the last four
hours. For some time prior to his recruitment, he had been aware of the long trend of
moderate profitability of his new employer. The reports on his desk confirm the slight, but
steady, improvements in net income in recent years. The trend he was just now becoming
aware of, though, was the decline in cash flows from operations.
Ben had sketched out the following comparison ($ in millions):
Profits? Yes. Increasing profits? Yes. The cause of his distress? The ominous trend in cash
flow which is con sistently lower than net income.
Upon closer review, Ben noticed three events in the last two years that, unfortunately,
seemed related:
a. Park’s credit policy had been loosened; credit terms were relaxed and payment periods
were lengthened.
b. Accounts receivable balances had increased dramatically.
c. Several of the company’s compensation arrangements, including that of the controller
and the company president, were based on reported net income.