Thank you for the opportunity to help you with your question!
The stakeholders in this situation are:
Samuel Gunkle, president of Wesley Corporation.
Gerald Rondelli, controller.
The Board of Directors.
The stockholders of Wesley Corporation.
The president’s statement, “We must get that amount above $1 million,”
puts undue pressure on the controller. This statement along with his
statement, “I know you won’t let me down, Gerald,” encourages Gerald
to do something unethical.
Controller Gerald Rondelli’s reclassification (intentional misclassification)
of a cash inflow from a long-term note (financing activity) issuance to an
“increase in payables” (operating activity) is inappropriate and unethical.
It is unlikely that any board members (other than board members who are
also officers of the company) would discover the misclassification. Board
members generally do not have detailed enough knowledge of their
company’s transactions to detect this misstatement. It is possible that an
officer of the bank that made the loan would detect the misclassification
upon close reading of Wesley Corporation’s statement of cash flows. It
is also possible that close scrutiny of the balance sheet showing an
increase in notes payable (long-term debt) would reveal that there is
no comparable financing activity item (proceeds from note payable) in
the statement of cash flows.
Please let me know if you need any clarification. I'm always happy to answer your questions.
Jan 16th, 2016
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