The WGN Company has a bonus arrangement that grants the financial vice president and other executives a $15,000 bonus if the net income exceeds the previous years by $1,000,000. Noting that the current financial statements report an increase of $950,000 in the net income, Vice President Jack Brickhouse asks Louise Boudreau, the controller, to reduce the estimate of warranty expense by $60,000. The present estimate of warranty expense is $500,000 and is known by both Brickhouse and Boudreau to be a fairly “soft” amount.
Instructions
Answer the following questions:
• Should Boudreau lower her estimate?
• What ethical issue is at stake? Would anyone be harmed by the change in estimate?
• Is Brickhouse acting ethically?
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