Asked by Randy Sandoval on Jun 12, 2024
Verified
Greyhound Stables Inc. operates several dog racing tracks throughout the United States. Since most facilities are outdoor tracks only most of the cash receipts for Greyhound are received from April through October. These funds are usually invested in short-term very liquid investments such as stocks and bonds. Among the stocks purchased last year was Servitronics a company specializing in automatic vending equipment.
The company decided not to sell its Servitronics stock at the end of last year and has purchased more of the stock this year. The company intends to continue to purchase stock until it holds enough to make a takeover bid for the company. The accountants have been instructed to continue to classify the investment as short-term until the takeover is accomplished so that less attention will be directed to it. (Presently Greyhound has no long-term investment in stock at all.)
Required:
1. Is it ethical for Greyhound to attempt to take over another company? Explain.
2. Is it ethical for Greyhound to leave its investment in the short-term investment category? Explain.
Ethical
Pertaining to morals, principles of right and wrong, and the conduct that is considered correct.
Short-term Investment
Investments that are made with the intention of converting them into cash within a short period, typically within a year.
Takeover Bid
An offer made by an entity to acquire a controlling interest in another company.
- Understand the principles and ethics behind financial reporting and investment decisions.
- Evaluate the ethical considerations in classifying investments as short-term for strategic purposes.
Verified Answer
2. It is not ethical for the company to leave the stock in the short-term category if it no longer meets the criterion for a short-term investment. It would depend upon whether the company was serious in its intention to purchase a controlling interest in Servitronics. Since there is no evidence to the contrary it appears that Greyhound's investment should be classified as long-term.
Learning Objectives
- Understand the principles and ethics behind financial reporting and investment decisions.
- Evaluate the ethical considerations in classifying investments as short-term for strategic purposes.
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