Tappit Corporation

Summary

Tappit Corp. is a medium-sized wholesaler of automotive parts.

Board's policy requires that, for the dividend to be declared, net cash provided by operating activities in the statement of cash flows must exceed $1 million.

At end of the current year, the controller Robert Jennings computed the net cash provided by operating activities to be only $970,000.

The president insisted to Robert to find a way to get the amount above $1 million.

Robert reclassify the $60,000, 2 year-note payable listed in the financing activities as "proceeds from bank loan-$60,000" to "Increase in payable-$60,000" under operating activities. It thereby created a net cash flow provided by operating activities of $1,030,000.

Requirements:

a. Who are the stakeholders in this situation?

b. Was there anything unethical about the president's actions? Was there anything unethical about the controller's actions?

c. Are the board members or anyone else likely to discover the misclassification?

Answer:

a. The stakeholders are:

- the board of directors

- the shareholders