Accounting problem faced by the organization

Linbarger Company has taken a loan from the insurance company. One of the parts of their insurance agreement was that the company had to make sure that it kept its earned cash account balance at the amiunt $200,000 per one month. Although, as June was ending, their earned cash account balance was holding only $80,000 that was implied that possibilities for the company to default the insurance loan were very plosible. The repercussion for the accounting problem is devastating, according to Lisa Infante. She states that the company is at closure risk if it won’t pay their loan. The Oconto Distributors $150,000 cheque is to mature yet, and according to the financial vice president, it will have to be included in the cash balance the following day.

Question 2: Ethical consideration of the case

There are various ethical considerations that have to be applicable in this case. As a part of the loan agreement, Linbarger Company was supposed to maintain its cash account balance at $200,000. The financial department was well aware of that and knew that consequences would befall the organization if they defaulted. Therefore, both accounting and financial department were supposed to abide by the agreement. Integrity in accounting is vital, and its contradiction leaves an organization at an unethical position.

An organization, in its financial dealings, is supposed to maintain high levels of transparency. In this case, however, Lindbarger Corporation finds faced with the challenge of raising $200,000 by the end of June. During the agreement with the insurance company, the firm would have openly told the loaner about the amount that it was capable of raising on a monthly basis. In so doing, the firm would have been allowed to maintain its cash account balance at an amount lower than $200,000. It will be ethical for the company to heed to Lisa’s advice on the inclusion of the $150,000 cheque in the cash balance upon its maturity the following day. With the inability of the organization to maintain the amount, its loan agreement may be defaulted, leading to the closure of the business and subsequent job loss.

Question 3: Negative impacts of failure by the organization to follow Lisa’s advice

Failure by the Linbarger Company to listen to Lisa’s advice about posting the $150,000 balance from Oconto Distributors may impact it negatively. The inclusion of the amount before the maturity of the cheque may put the organization in a compromising situation due to the risks that may arise should it bounce. On a bigger picture, the firm is accounting for financial amount that is hardly at its disposal and failure by cheque to materialize implies that the organization may be forced to dig into its reserves to pay it thus attracting insolvency.

Integrity is instrumental in financial reporting. Posting of the amount in the cash balance before waiting for its maturity is unethical because the company may be dealing with a sum that it’s not certain about. The case can be treated as adjustment of accounting books which is against the set principles. Some of the repercussions that may befall the company due to the malpractice may include revocation of its licenses or closure. Failure by the staff to comply may also lead to their being fired from their positions.

Question 4: Individual that will negatively be impacted should the organization comply

The individual that will negatively be affected by the company’s decision to comply with Lisa’s advice to post the balance was the person in charge of cash account balances and ledgers. He or she was supposed to ensure that the organization set aside monthly finances that were supposed to pay for the loan borrowed from the insurance firm. However, as at the end of the month, Linbarger Corporation had only raised $80,000 which was far much less compared to $200,000 that was supposed to be paid. Apparently, the move by the organization to comply with Lisa’s advice exposes the mistakes that led to the firm’s current position. It shows that the person in charge of the cash accounts and ledgers lacked transparency due to his or her failure to inform the head of the finance department earlier that it would have been hard for the organization to meet the required monthly loan payout.

With the decision for the firm to comply with the financial vice president’s advice on waiting one day to post the balance, it means that individual that the controller in charge of the general ledger accounting within the organization will have to answer various ethical questions. He or she will have to explain to the board some of the reasons that led to the failure by the firm to meet the monthly agreed loan payment and measures that could have been implemented to avoid the current scenario. The individual’s job security may end up negatively impacted as a result of transparency and integrity issues.

Question 5: Alternative to pursue the scenario

One of the alternatives that the organization may embrace is to discuss their current situation with the insurance company asking it to extend the payment time. In the process, the Linbarger Company may also negotiate with the loaner to lower the loan limits to suit its cash conversion cycles.