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Hoffman Piano Company is in the business of manufacturing top-quality, classical pianos. 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, Mansfield Hoffman, 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, TT&B Financial, is especially concerned about Hoffman's inability to maintain a positive cash position. The commercial loan officer from TT&B Financial told Mansfield, 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, Mansfield came up with what he 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 Hoffman Piano, it is your job to tell Mansfield what you think of his plan.

Instructions Answer the following questions. a) What are the ethical issues related to Mansfield Hoffman's idea? b) What are the potential consequences to Mansfield Hoffmans actions? c) What would you tell Mansfield Hoffman?

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