Ethical Dilemma Loyalty versus the bottom line
Assume that Kevin has been working for you for five years. He has had an excellent work history and has received generous pay raises in response. The raises have been so generous that Kevin is quite overpaid for the job he is required to perform. Unfortunately, he is not qualified to take on other, more responsible jobs available within the company. A recent job applicant is willing to accept a salary $5,000 per year less than the amount currently being paid to Kevin. The applicant is well qualified to take over Kevin’s duties and has a very positive attitude. The following financial statements were reported by your company at the close of its most recent accounting period.
Required
a. Reconstruct the financial statements (shown below), assuming that Kevin was replaced at the beginning of the most recent accounting period. Both Kevin and his replacement are paid in cash. No other changes are to be considered, lb. Discuss the short- and long-term ramifications of replacing Kevin. There are no right answers. However, assume that you are required to make a decision. Use your judgment and common sense to support your choice.
Statement of changes in Stockholder’s Equity | ||
|
| |
Beginning common stock | $ 20,000 |
|
Plus: stock issued | 5,000 |
|
Ending common stock | _ | $25,000 |
Beginning retained earnings | 50,000 |
|
Net income | 12,000, |
|
Dividends | (2,000) |
|
Ending retained earnings |
| 60,000 |
Total stockholders’ equity |
| $85,000 |
Balance Sheet |
|
|
Assets |
|
|
Cash |
| $85,000 |
Equity |
|
|
Common stock |
| $25,000 |
Retained earnings |
| 60,000 |
Total stockholder’s equity |
| $85,000 |
Statement of cash rows |
|
|
Operating activities |
|
|
Inflow from customers | $ 57,000 |
|
Outflow to suppliers expenses | (45,000) |
|
Net inflow from operations |
| $12,000 |
Investing activities |
| 0 |
Financing activities |
|
|
Inflow from stock issue | 5,000 |
|
Outflow for dividends | (2,000) |
|
Net inflow from financing activities |
| 3,000 |
Net change in cash |
| 15,000 |
Plus: beginning cash balance |
| 70,000 |
Ending cash balance |
| $85,000 |
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