William Sheets is interested in purchasing the business. However, he is located in another city and is unfamiliar with Newton. He has asked Joe why he is selling Joe's Burgers. Joe replies that his elderly mother requires extra care, and that his brother needs help in his manufacturing business. Both are true, but neither is his primary reason for selling. Joe reasons that William should not have asked him anyway, since profitable businesses don't come up for sale.
Required:
1. Identify the stakeholders in this situation.
2. Did Joe act ethically in not revealing fully his reasons for selling the business? Why or why not?
Ans: N/A, LO: 3, Bloom: E, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Reporting
Solution 236
1. The stakeholders include:
Joe Laramie Students of City College and other customers
William Sheets City College
Newton, Ohio Persons financing the purchase of Joe's Burgers
2. Joe did not act ethically in not revealing fully his reasons for selling the business. Students might be of the opinion that a purchaser should investigate a business before purchasing it, rather than relying entirely on the seller's assertions. However, students should realize that Joe should have said something about his problems. He might ethically be allowed to put these in the best possible light, perhaps, but failure to disclose them at all is certainly unethical. This is especially true, since family concerns might well cause someone to sell a business that is otherwise doing well. Joe has shown an intent to deceive that is unethical, and might be actionable in court as well.
S-A E 237 (Communication)
Mary Baroni is a friend of yours from high school. She decided to become a beautician after leaving high school, rather than to attend college. She recently opened her own shop, and has contracted her services to a local hospital. She is paid a monthly fee for her services, and receives a small gratuity from each of the patients.
She has just received her first set of financial statements from her accountant. She is quite upset. The statements show a cash balance of $3,600 at the end of the month, but a net income of only $500. She has written you a letter, asking you whether such a situation is possible, or whether she should find another accountant.
Required:
Write a short letter to your friend. Use proper form. Answer her question completely, but briefly.
Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 5, AACSB: Communication, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Communications, IMA: Business Economics
Solution 237
Answers will vary. The instructor's requirements concerning proper form should be followed. The letter may be either business or personal. At a minimum, the letter should be in a recognizable form, and proper grammar and spelling should be used. A suggested personal letter follows:
1245 Lily Lane
Buena Vista, AR 77661
(Date)
Dear Mary,
Congratulations on opening your business! I am sure you will do well, combining your creative genius with your talent for serving others.
You asked about your financial statements. Of course, you realize that I am just an accounting student, but I do know that it is possible to have a large cash balance and little net income. You may have had expenses that were not paid in cash yet. These expenses reduce your income, but not your cash.
I think that you should discuss the statements with the accountant who prepared them. He or she will be in the best position to explain the results.
Thanks for the question. It really made me think.
Sincerely,
(signature)