Question

Readings Page and answer the 3 questions that follow.

BUSINESS ETHICS ASSIGNMENT CASES 59 Financial Compensation for the Victims of Bhopal manukatore ludia for use it was said On December 3, 1984, some 2.000 people were killed and 200,000 were injured when a doud of poisonous methylisocya nate gas was accidentally released from the Union Carbide Com pany plant in Bhopal, India. The methylisocyanate was used to manufacture Sevin, a plant pesticide that was distributed widely throughout India for use on that country's corn, rice, soybean, cotton, and alfalfa crops. It was said that the use of Sevin in creased the barvest of the food crops by over 10 percent, enough to feed 70 million people. The accident apparently occurred when between 120 and 240 gallons of water were introduced into a tank containing 90,000 pounds of methylisocyanate. The tank also contained approx- imately 3,000 pounds of chloroform, which is used as a solvent in the manufacture of methylisocyanate, the two chemicals should have been separated before storage, but that had not been done for some time in the operating process at Bhopal The water reacted exothermically producing leat) with the chloroform, generating chlorine ions, which led to corrosion of the tank walls, and the iron oxide from the corrosion in turn re- acted exothermically with the methylisocyanate. The increase in heat and pressure was rapid but unnoticed because the pressure gauge on the tank had been inoperable for four months and the operators in the control room, monitoring a remote temperature gauge, were accustomed to higher-than-specified heat levels (25 rather than the IC in the operating instructions) due to the continual presence of the chloroform and some water vapor in the tank. The refrigeration unit buik to cool the storage tank had been disconnected six months previously. The "scrubber." a safety device to neutralize the methylisocyanate with caustic soda had been under repair since Junc. An operator, alarmed by the suddenly increasing temperature, attempted to cool the tank by spraying it with water, but by then the reaction was unstoppable. at a probable 200CThe rupture disc a steel plate in the line to prevent accidental operation of the safety valve) broke, the safety valve opened just before, it is assumed, the tank would have burst), and over half the 45 tons of methylisocyanate in storage were discharged into the air. Following the accident, Union Carbide officials in the United States denied strongly that their firm was responsible for the trage edy. They made the following three statements in support of that position: 1. The Bhopal plant was 50.9 percent owned by the Ameri can firm, but the parent corporation had been able to exercise very little control. All managerial and technical personnel were citizens of India at the insistence of the Indian government. No Americans were permanently employed at the plant Safety war ings from visiting American inspectors about the Sevin manufac turing process had been ignored. 2. Five automatic safety devices that had originally been in stalled as part of the Sevin manufacturing process had, by the time of the accident, been either replaced by manual safety methods to increase employment, shut down for repairs, or dis- connected as part of a cost reduction program. The automatic temperature and pressure warning signals had been removed soon after construction. The repairs on the automatic rubber unit had extended over six months. The refrigeration unit had never been used to cool the tank and had been inoperable for Over a year 3. The Bhopal plant had been built in partnership with the Indian government to increase employment in that country. Union Carbide would have preferred to make Sevin in the United States and ship it to India for distribution and sale, because the insec ticide could be made less expensively in the United States due to substantial economies of scale in the manufacturing process Warren Anderson, chairman of Union Carbide, stated that while he believed that the American company was not legally lia ble for the tragedy due to the three points above, it was still mor ally responsible, and he suggested that the firm should pay prompe financial compensation to those killed and injured in the accident. Class Assignment. Assume that the question of legal liability for the accident at Bhopal never will be settled, due to differences in the law between the two countries and the difficulties of 60 CHAPTER MANAGERIAL ETHICS AND MICROECONOME THEORY establishing jurisdiction. Assume, however, that the American company is morally responsible for the tragedy, as admitted by the chairman, because it was the majority owner and yet did not insist that the safe process be shut down. What factors would you considerin sestig just financial compensation for Cach of the Note

Answer 1

Requirement 1
Transaction	General Journal	Debit	Credit
i	Bad debt expense	$     6,000.00
	Allowance for Doubtful Accounts		$     6,000.00
	(To Record Adjusting Entry at Year end)
ii	Bad debt expense	$           3,200
	Allowance for Doubtful Accounts		$          3,200
	(To Record Adjusting Entry at Year end)
iii	Bad debt expense	$           5,613
	Allowance for Doubtful Accounts		$           5,613
	(To Record Adjusting Entry at Year end)
Working :
i	Bad debts are estimated @ 4% of Net sales
	$600000*1%	$     6,000.00
b	Bad debts are estimated 4% of gross AR
	80000*4%	$           3,200
c	Allowance is 5% of net Accounts Receivable
	unadjusted Balance	$           1,700	credit
	Estimated Balance (80000-1750)*5%	$           3,913	Credit
		$           5,613	Credit