Ethics in Action
Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks’ salary. On November 15, the firm’s management team announced that there would be no annual bonus this year. Because of the firm’s long history of giving a year-end bonus, Tonya and her coworkers had come to expect the bonus and believed that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedy’s policy is to pay overtime at 150% of straight time.
Tonya’s supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the “honor system” in reporting their work hours.
1. Is Cannally and Kennedy acting in an ethical manner by eliminating the bonus? Explain your answer.
2. Is Tonya behaving ethically by making up the bonus with unnecessary overtime? Why or why not?
CP 11-2
Ethics in Action
Marvin Turner was discussing summer employment with Tina Song, president of Motown Construction Service:
Tina:
I’m glad you’re thinking about joining us for the summer. We certainly can use the help.
Marvin:
Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses.
Tina:
I’ve got a plan that can help you out on that. As you know, I’ll pay you $14 per hour, but in addition, I’d like to pay you with cash. Since you’re only working for the summer, it really doesn’t make sense for me to go to the trouble of formally putting you on our payroll system. In fact, I do some jobs for my clients on a strictly cash basis, so it would be easy just to pay you that way.
Marvin:
Well, that’s a bit unusual, but I guess money is money.
Tina:
Yeah, not only that, it’s tax-free!
Marvin:
What do you mean?
Tina:
Didn’t you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesn’t know about the income—hence, it’s the same as tax-free earnings.
1. Why does Tina Song want to conduct business transactions using cash (not check or credit card)?
2. How should Marvin respond to Tina’s suggestion?
CP 11-3
Team Activity
In teams, select a public company that interests you. Obtain the company’s most recent annual report on Form 10-K. The Form 10-K is a company’s annually required filing with the Securities and Exchange Commission (SEC). It includes the company’s financial statements and accompanying notes. The Form 10-K can be obtained either (a) by referring to the investor relations section of the company’s website or (b) by using the company search feature of the SEC’s EDGAR database service found at www.sec.gov/edgar/searchedgar/companysearch.html.
Based on the information in the company’s annual report, answer the following questions:
1. What amount of current liabilities does the company report on its balance sheet at the end of the most recent year? What types of current liabilities does the company report?
2. Have current liabilities increased or decreased from the prior year? If so, by what amount?
3. Does the company disclose any contingent liabilities in the notes to the financial statements? If so, briefly describe the nature of these contingent liabilities.
4. How much of the company’s long-term debt will come due in the coming year?