I’m studying for my Accounting class and need an explanation.
Sharon Els sells security systems for Guardsman Security Co. Els has a monthly sales quota of $40,000. If Els exceeds this quota, she is awarded a bonus. In measuring the quota, a sale is credited to the salesperson when a customer signs a contract for installation of a security system. Through the 25th of the current month, Els has sold $30,000 in security systems.
Vortex Co., a business rumored to be on the verge of bankruptcy, contacted Els on the 26th of the month about having a security system installed. Els estimates that the current contract would yield about $14,000 worth of business for Guardsman Security Co. In addition, this contract would be large enough to put Els “over the top” for a bonus in the current month. However, Els in concerned that Vortex Co. will not be able to make the contract payment after the security system is installed. In fact, Els has heard rumors that a competing security services company refused to install a system for Vortex Co. because of these concerns.
Upon further consideration, Els concluded that her job is to sell security systems and that it’s someone else’s problem to collect the resulting accounts receivable. Thus, Els wrote the contract with Vortex Co. and received a bonus for the month.
Do you feel that there is an ethical issue with this situation? If you were Els (the salesperson), how would you handle this scenario? If you were the accountant in charge at Guardsman, how would you handle the situation? What can the company do to protect themselves?
On February 24, 2008, Lawn Ranger Company, a garden retailer, purchased $40,000 of corn seed, terms 2/10, n/30, from Nebraska Farm Co. Even though the discount period had expired, Corey Gilbert, the accountant for Lawn Ranger, subtracted the discount of $800 when he processed the documents for payment on March 25, 2008.
Did Corey Gilbert behave in an ethical manner when he remitted the payment? If you were Corey Gilbert, how would you have handled the situation? If you were the accountant for Nebraska Farm, how could you prevent this from happening in the future? Do you believe this is a common practice among companies?
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