Health Corporation has several notes receivable reported as current assets on its year-end balance sheet. While collection seems certain, it may be delayed beyond one year. Because of this, the controller wants to reclassify these notes as non-current. Health’s treasurer also thinks that collection will be delayed but does not favor reclassification because this will reduce the current ratio from 1.5:1 to 0.8:1. This reduction in current ratio is detrimental to company prospects for securing a major loan.
Answer the following questions:
Should the controller reclassify the notes? Give your reasons.
Does the treasurer’s position pose an ethical dilemma for the controller? Explain your answer.