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Scenario:Brokman Guitar Company is in the business of manufacturing top-quality, steel-ring folk guitars. In recent years the company has experienced working capital problems reulting from the procurement of factory equipment, the unanticipated buildup of recievables 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 to 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.” Thinkikng 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 recievables to factors and liquidate its raw materials inventories. These rather costly tranzactions 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,Instruction:a. What are the ethical issues related to Barabara Brockman’s idea?b. What would you tell Barbara Brockman?
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