Problem:
Company Z had signed a long-term purchase contract to buy 20,000 board feel of timber from the British Colombia Forest Service for 250 dollars per board. Under the contract, Company Z must cut and pay $5,000,000 for this timber during the next year. Currently, the market value is $200 per board. Pat Bapp, the controller wants to recognize a $1,000,000 loss on the contract in the year-end statement, but the financial vice precedent argues that the loss is temporary, and it should be ignored. Bapp notes, however that the market value has remained near $200 for many months, and he sees no sign of significant changes.
I need help with the following points:
a) What are the ethical issues, if any?
b) Is any particular stakeholder harmed by the financial VP's solution?
c) What would you do if you were the controller?