Brockman Guitar Company is in the business of manufacturing top-quality, steelstring folk guitars. In recent years the company has experienced working capital
problems resulting from the procurement of factory equipment, the unanticipated
buildup of receivables and inventories, and the payoff of a balloon mortgage on a
new manufacturing facility. The founder and president of the company, Barbara
Brockman, has attempted to raise cash from various financial institutions, but to
no avail because of the company’s poor performance in recent years. In
particular, the company’s lead bank, First Financial, is especially concerned
about Brockman’s inability to maintain a positive cash position. The commercial
loan officer from First Financial told Barbara, "I can’t even consider your request
for capital financing unless I see that your company is able to generate positive
cash flows from operations." Thinking about the banker’s comment, Barbara
came up with what she believes is a good plan: With a more attractive statement
of cash flows, the bank might be willing to provide long-term financing. To
"window dress" cash flows, the company can sell its accounts receivables to
factors and liquidate its raw materials inventories. These rather costly
transactions would generate lots of cash. As the chief accountant for Brockman
Guitar, it is your job to tell Barbara what you think of her plan. Answer the
following questions.
(a) What are the ethical issues related to Barbara Brockman’s idea?
(b) What would you tell Barbara Brockman?

Expert Answer

a) Barbara Brockman's idea appears to be window dressing, which is a short-term measure taken by a business to make its financial statements impressive.  It is not ethical to window dress financial statements.

However, Barbara's idea on the sale of its accounts receivables to factors and the liquidation of raw materials inventories is not wholly window-dressing, if it is sustainable. They are financial management efforts to acquire cash to ensure the company's survival in the short-term.  But can the company survive in the long-term? Can Barbara get factors to buy the accounts receivable and buyers of the raw materials at good prices?

The assets will certainly be sold at give-away prices.  The result may weaken the financial position of the company in the long-run because the sold raw materials are required for production.  The company may sell off at lower prices now, only to acquire them at higher prices later.  Selling off inventories at reduced prices does not make economic sense.

b) I would encourage Barbara Brockman to try other solutions like the sale of some long-term assets that are not needed in the company.  The company can offer cash discounts to customers to encourage payment on accounts.  Other sustainable strategies can be explored.

Thus, I would not encourage Barbara to window-dress the company's financial statements with the sale-off of accounts receivables and raw materials.

Learn more about window-dressing financial statements here: link, link, and link

answerthere are 5 cte courses that you take;

this is all on your opinion. you choose what you want to do.