05 Jun Question ETHICS SITUATION
Question
ETHICS SITUATION
A restaurant manager has received a bonus for each of the past five years based on increases
in sales revenue that have averaged about 5% over the previous year. The restaurant owner
asked to have the sales revenue figures for the last five years adjusted for inflation and the
manager had an accountant adjust the figures. On reviewing the results, the manager notices
that sales revenues have remained virtually flat, and in one year, sales revenues actually
declined slightly. Before submitting the adjusted figures to the owner, the manager decides to
change them to show that sales revenue increases averaged approximately 3% a year. By
changing the adjusted figures, the manager hopes to show the owner the annual bonuses were
justified. Discuss the ethics of this situation.
EXERCISES
E3.1 A restaurant owner expressed concern about the changes in the cash, credit card
receivables, and food and beverage inventories accounts in the months of July and
August of the current year. He wants you to show him the dollar changes and the
percentage of change for each of these accounts using comparative horizontal analysis.
July
August
Cash
$ 8,240
$ 6,592
Credit card receivables
1,480
2,398
Food inventories
4,680
6,506
Beverage inventories
2,880
2,448
Total Current Assets
$17,280
$17,944
E3.2 Complete a commonsize vertical analysis for the months of July and August
using E3.1s data.
E3.3 Complete a commonsize vertical analysis of the following condensed income
statement.
Condensed Income Statement
Sales revenue
$482,000
Cost of sales
( 202,440)
Gross margin
$279,560
Operating expenses
( 207,400)
Operating income
72,160
$
E3.4 A rooms operation had an average room rate of $50.00 in the first year, $48.00 in
Year 2, and $54.00 in Year 3. Establish a trend index starting with the average room
rate for the first year and determine the index numbers for Year 1, Year 2, and Year 3.
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