Flower Childs is a regional sales manager for Green Grow

Inc
Flower Childs is a regional sales manager for Green-Grow, Inc., a producer of garden supplies.
The company's fiscal year ends on April 30. In mid-April, Flower is contacted by the president of
Green-Grow. He indicates that the company is facing a financial problem. Two years ago, the
company borrowed heavily from several banks to buy a competing company and to increase
production of its primary products: insecticides and fertilizers. As a part of the loan agreement,
Green-Grow must maintain a working capital ratio of 1.5 to 1 and earn a net income of at least
$2 per share. If the company fails to meet these requirements, as reflected in its annual
financial statements, the banks can restrict future credit for the company or require early
payment of its loans, potentially forcing the company into bankruptcy. The president explains
that this fiscal year has been a difficult one for Green-Grow. Sales have slipped because of
increased competition, and the rising prices of chemicals have increased the company's
production costs. The company is in danger of not meeting the loan requirements. The
company could be forced to make drastic cuts or to liquidate its assets. The president informs
Flower that her job could be in danger. The president asks her to help with the problem by
dating all sales invoices that clear her office during the first half of May as though the sales had
been made in April. May is a month of heavy sales volume for the company as retail stores
stock up for the coming season. The president believes that the added sales would be sufficient
to get the company past the loan problem. He explains that this procedure will be used only this
one time. By next year, the company will be in better shape because of new products it is
developing. Also, he reminds Flower that her bonus for the year will be higher because of the
additional sales that will be recorded for April. He points out that the company is fundamentally
in sound financial shape, and that he would hate to see its future jeopardized by a minor
bookkeeping problem. He is asking for the cooperation of all of the regional sales managers. He
argues that the stockholders, employees, and managers will all be better off if the sales are
predated. He wants Flower's assurance that she will cooperate.RequiredA. What effect will
predating the sales have on Green-Grow's balance sheet, income statement, and statement of
cash flows? Be specific about which accounts will be affected and why.B. How will this practice
solve the company's problem with the banks?C. What would be the appropriate behavior for the
company president under the circumstances the company is facing?D. What would be the
appropriate behavior for Flower?View Solution:
Flower Childs is a regional sales manager for Green Grow Inc
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