Horizon Corporation

Horizon Corporation manufactures personal computers. The company began operations in 2002 and reported profits for the years 2004 through 2009. Due primarily to increased competition and price slashing in the industry, 2010's income statement reported a loss of $20 million. Just before the end of the 2011 fiscal year, a memo from the company's chief financial officer to Jim Fielding, the company controller, included the following comments: "If we don't do something about the large amount of unsold computers already manufactured, our auditors will require us to write them off. The resulting loss for 2011 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's president and he will accept the merchandise and acknowledge the shipment as a purchase. We can record the sale in 2011 which will boost profits to an acceptable level. Then J.B. Sales will simply return the merchandise in 2012 after the financial statements have been issued." Discuss the ethical dilemma faced by Jim Fielding. What main ethical issues face Jim Fielding? Choose at least two issues, select an approach, and explain your justification using accounting principles

Ethical dilemma is considered as a complex situation where a person faces mental conflict about what to do in a particular complex situation. As per the provided case study, Jim Fielding, the company controller of Horizon Corporation is facing the same kind of ethical dilemma. According to the provided case, Jim Fielding is suggested to ship half of the inventories of the company to another company in order to avoid a huge loss. This process leads to many unethical issues. It is against the accounting principles; this process is also against the auditing rules; this can be considered as fraudulent and many others. 

There are two major ethical issues in this process. First, it against the accounting principles to illegally transfer products of a company to another company. It is not acceptable for any company to illegally ship any product to another company for a certain period. Second, this process will help the management of the company to manipulate the financial statement. In this case, the financial reports of Horizon Corporation will not show the actual financial condition of the company. As a result, the investors and other stakeholders of the company will be affected (Stice & Stice, 2013).

  The company can write off these unsold computers by creating a reserve for inventory write off account. This is considered as a Contra Account and it pairs with the inventory account. In this approach, the loss is charged against the reserve for inventory write off account. As per the accounting principles