Response to the following problem:
As we continue with this case, assume that your cookie store is now part of a national chain. The store has been consistently profitable, and sales remain satisfactory despite a temporary economic downturn in your area.
At the first of the year, corporate headquarters set a targeted return on investment of 20 percent for your store. The store currently averages $140,000 in invested assets (beginning invested assets, $130,000; ending invested assets, $150,000) and is projected to have an operating income of $30,800. You are considering whether to take one or both of the following actions before the end of the year:
Hold off recording and paying $5,000 in bills owed until the start of the next fiscal year.
Write down to zero value $3,000 in store inventory (nonperishable containers) that you have been unable to sell.
Currently, your bonus is based on store profits. Next year, corporate head quarters is changing its performance incentive program so that bonuses will be based on a store's actual return on investment.
1. What effect would each of the actions that you are considering have on the store's operating income this year?
2. Independent of question 1, how would the inventory write-down affect next year's income and return on investment if the inventory is sold for $4,000 next year, when corporate headquarters changes its performance incentive plan for store managers? In your opinion, do you have an ethical dilemma?