Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber's particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. LauraGreen is High Mountain Lumber's regional controller. All of High Mountain Lumber's plants and divisions send Green their productionand cost information. While revieweing the numbers of the twoparticle board plants, she is surprised to find that both plantsestimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has knownfor some time. He admits that to ensure their division would meetits profit goal and that both he and Pines would make their bonus(which is based on division profit), they agreed to inflate thepercentage completion. Lopez explains, "Determining the percentcomplete always requires judgment. Whatever the percent complete, we'll finish the Work-in-process Inventory first thing nextyear. 1. How would inflating the percentage completion of endingWork-in-Process Inventory help Pines and Lopez get their bonus?
2. The particular board division is the largest of High Mountain Lumber's divisions. If Green does not correct the percentagecompletion of this years ending Work-in-Process Inventory, howwill the misstatement affect High Mountain Lumbers financialstatements?
3. Evaluate Lopezs justification, including the effect, if any, on next years financial statements.
4. Address the following: A. What is the ethical issue? B. What arethe options? C. What are the potential consequences? D. What should Greendo?