Moss Exports is having
a bad year. Net income is only $60,000. Also, two important overseas customers
are falling behind in their payments to Moss, and Moss’s accounts receivable
are ballooning. The company desperately needs a loan. The Moss Exports Board of
Directors is considering ways to put the best face on the company’s financial
statements. Moss’s bank closely examines cash flow from operating activities.
Daniel Peavey, Moss’s controller, suggests reclassifying the receivables from
the slow-paying clients as long-term. He explains to the board that removing
the $80,000 increase in accounts receivable from current assets will increase
net cash provided by operations. This approach may help Moss get the loan.
1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?
Instructions: Your initial response should be no less than 250 words with at least one scholarly journal reference (dictionary-type websites are excluded).
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