ANSWERS IN ACCTG.

RESEARCH
1) Only a financial manager with unusual insight and timing could design a
plan in which asset buildup and the length of financing terms are
perfectly matched. One would need to know exactly what part of current
assets are temporary and what part are permanent. Furthermore, one is
never quite sure how much short-term or long-term financing is available
at all times. Even if there were known, it would be difficult to change
the financing mix on a continual basis.

2. answer:
Restricted (40%) moderate (50%) relaxed (60%)
Current assets (% of sales) P1,200,000 P1,500,000 P1,800,000
Fixed assets 600,000 600,000 600,000
Total assets P1,800,000 $2,100,000 $2,400,000
Debt P900,000 P1,050,000 P1,200,000
Equity 900,000 1,050,000 1,200,000
Total liabilities and equity P1,800,000 P2,100,000 P2,400,000

the Caimito company alternative income statements

Restricted moderate relaxed
Sales P3,000,000 P3,000,000 P3,000,000
EBIT 450,000 450,000 450,000
Interest (10%) 90,000 105,000 120,000
Earning before taxes P360,000 P345,000 P330,000
Taxes (40%) 144,000 138,000 132,000
Net income P216,000 P207,000 P198,000
ROE 24.0% 19.7% 16.5%
Case study answer:

1. No, Santos did not act in an ethical manner. In complying with the president's instructions to omit
liabilities form the company's financial statements he was in direct violation of Standards of Ethical
Conduct for Management Accountants. He violated both integrity and objectivity guidelines on this code
of ethical conduct. The fact that the president ordered the omission of the liabilities is immaterial.

2. No, Santos' actions can't be justified. In dealing with similar situations, the SEC has consistently ruled
that "corporate officers cannot escape culpability by asserting that they acted as good soldiers and
cannot rely upon the fact that the violative conduct may have been condoned or ordered by their
corporate superiors." Thus, Santos not only acted unethically, but he could be held legally liable if
insolvency occurs and litigation is brought against the company by creditors or others. Santos should
have resigned rather than become a party to the fraudulent misinterpretation of the company's financial
statements