Brockman Guitar Company is in the business of

manufacturing top
Brockman Guitar Company is in the business of manufacturing top-quality, steel-string folk
guitars. In recent years the company has experienced working capital problems resulting from
the procurement of factory equipment, the unanticipated buildup of receivables and inventories,
and the payoff of a balloon mortgage on a new manufacturing facility. The founder and
president of the company, Barbara Brockman, has attempted to raise cash from various
financial institutions, but to no avail because of the company’s poor performance in recent
years. In particular, the company’s lead bank, First Financial, is especially concerned about
Brockman’s inability to maintain a positive cash position. The commercial loan officer from First
Financial told Barbara, “I can’t even consider your request for capital financing unless I see
that your company is able to generate positive cash flows from operations.” Thinking about the
banker’s comment, Barbara came up with what she believes is a good plan: With a more
attractive statement of cash flows, the bank might be willing to provide long-term financing. To
“window dress” cash flows, the company can sell its accounts receivables to factors and
liquidate its raw materials inventories. These rather costly transactions would generate lots of
cash. As the chief accountant for Brockman Guitar, it is your job to tell Barbara what you think of
her plan. Answer the following questions.(a) What are the ethical issues related to Barbara
Brockman’s idea?(b) What would you tell Barbara Brockman?View Solution:
Brockman Guitar Company is in the business of manufacturing top
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