Two Brothers, a Small Book Publishing Company, Wrote Off the Debt

question 166

Essay

Two Brothers, a small book publishing company, wrote off the debt of The Learning Place, and the Academy of Basic Education, both small private schools, after it determined that the schools were facing serious financial difficulty. No notice of the action was sent to the schools; Two Brothers simply stopped sending bills. Nearly a year later, The Learning Place was given a large endowment and a government grant. The resulting publicity brought the school to the attention of Two Brothers, which immediately reinstated the account, and sent a new bill to the school, including interest for the entire time the debt was outstanding. No further action was taken regarding the Academy of Basic Education, which was still operational.
Required:
Did Two Brothers act ethically in reinstating the debt of one client, and not the other? Explain.

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Definitions:

Activity Base

A measure used in costing that drives the cost of activities, typically used in activity-based costing.

Service Department Expenses

Costs associated with departments that support the primary operations of a company, like IT support, human resources, and maintenance.

Activity Base

A measure used as a foundation for allocating costs in activity-based costing, representing transactions or events that cause costs to be incurred.

Payroll Checks

Checks issued to employees as payment for their services, representing wages or salaries.