Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber...

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Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at $300 per thousand board feet. Under these terms, Prophet must cut and pay $6,000,000 for this timber during the next year. Currently, the market value is $250 per thousand board feet. At this rate, the market price is $5,000,000. Jerry Herman, the controller, wants to recognize the loss in value on the year-end financial statements, but the financial vice president, Billie Hands, argues that the loss is temporary and should be ignored. Herman notes that market value has remained near $250 for many months, and he sees no sign of significant change.

Instructions(a)

What are the ethical issues, if any?

(b)

Is any particular stakeholder harmed by the financial vice president's decision?

(c)

What should the controller do?

Answered Same DayMar 25, 2021

Answer To: Prophet Company signed a long-term purchase contract to buy timber from the U.S. Forest Service at...

Vasudha answered on Mar 26 2021
142 Votes
a) What are the ethical issues, if any?
Ethics in any legal business is important to carry on the b
usiness further and get any support from the Government and from society at large.
In this case, the price quoted by the Prophet Company seems exorbitant; it is more by 20% from the previous year. Considering the trend pas trend of the price increase, prices have not increased so much past years, so based on trends also, it is not ethical to quote a high price unless and until there is a clear demand for product and a valid reason as per the global trend and...
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