ETHICS CASE- Research and Development Division of Molina Corporation

Research and Development Division of Molina Corporation

Ethics in financial reporting is critical to the reliability of financial statements. Corporate managers are under enormous pressure to provide high earnings and dividend amounts. After reading the EC 14 Ethics Case of your text, discuss the following:

Who are the stakeholders in this situation?

Is there anything unethical about Lowery's intentions or actions? Explain your answer.

What is the effect of a stock dividend on a corporation's stockholders' equity accounts? Which would you rather receive as a stockholder — a cash dividend or a stock dividend? Why?

ETHICS CASE

EC14 Molina Corporation has paid 60 consecutive quarterly cash dividends (15 years). The last 6 months, however, have been a cash drain on the company, as profit margins have been greatly narrowed by increasing competition. With a cash balance sufficient to meet only day-to-day operating needs, the president, Rob Lowery, has decided that a stock dividend instead of a cash dividend should be declared. He tells Molina’s financial vice president, Debbie Oler, to issue a press release stating that the company is extending its consecutive dividend record with the issuance of a 5% stock dividend. “Write the press release convincing the stockholders that the stock dividend is just as good as a cash dividend,” he orders. “Just watch our stock rise when we announce the stock dividend. It must be a good thing if that happens.”