The ethical issues is whether Don’s obligation to Judith to increase net income is greater than his obligation to provide information that is not misleading to users of the financial statements. the land at a proportionately higher value than the building.
2. Record the allocation of the purchase price between the land and the building based upon the current relative market values.
Evaluation of Alternatives in Terms of Values:
1. Alternative 1 illustrates loyalty to placing the Cookie Company in a favorable financial position.
2. Alternative 2 reflects values of competence, honesty, integrity, objectivity, and responsibility to users of the financial statements.Positive consequences: Future net income will be increased, profit-sharing plan members will benefit, the price of the company’s stock will increase, investors will experience higher returns on their investments, taxing authorities will receive more tax revenue.
Negative consequences: Users of the financial statements, including taxing authorities, would be misinformed regarding the specific value of the land and building and future net income. The company will be paying higher taxes. If top management detects the manipulation, both the controller and the CFO may lose their jobs.