The net income of Reliable provision company decreased sharply during 2003. Clay Rollins, owner of the store, anticipate the need for a bank loan in 2004. Late in 2003, he instructed the accountant to record a $70000 sale of recreational gear to the Smith famiy, even though thegoods will not be shipped from the manufacturer until January 2004.Rollins told the accountant not to make the following adjusting entries.Salary owed toemployees $1000
Expired prepaid insurance $500
Is Income overstated or understated? Why did Rollins tke these actions? Are they ethical? Give reasons for your answers. As a friend, what advice would you give the accountant?

Homework questionThe net income of Reliable provision company decreased sharply during 2003. Clay Rollins, owner of the store, anticipate the need for a bank loan in 2004. Late in 2003, he instructed the accountant to record a $70000 sale of recreational gear to the Smith famiy, even though thegoods will not be shipped from the manufacturer until January 2004.Rollins told the accountant not to make the following adjusting entries.Salary owed toemployees $1000
Expired prepaid insurance $500
Is Income overstated or understated? Why did Rollins tke these actions? Are they ethical? Give reasons for your answers. As a friend, what advice would you give the accountant?

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The income of reliable provisions is definitely overstated. Rollins took thes actions becasue he knows the bank will look at his company financial statements for the last fiscal periodin orderto deterine his ability to repay the loan. If he did not alter the company records in his favor, he would run the risk of his loan being denied. I think these action are unethical because they present misleading infromation about the financial health of the copany, and false infromation to the bank. As a friend to the accountant I would advise her against being a part of Rollins' fraudulent plans to deceive protential creditors. I would also remind her of her commintment as an accountant to uphold the rules and regulations of general accepted accounting principle (GAAP).

The income of reliable provisions is definitely overstated. Rollins took thes actions becasue he knows the bank will look at his company financial statements for the last fiscal periodin orderto deterine his ability to repay the loan. If he did not alter the company records in his favor, he would run the risk of his loan being denied. I think these action are unethical because they present misleading infromation about the financial health of the copany, and false infromation to the bank. As a friend to the accountant I would advise her against being a part of Rollins' fraudulent plans to deceive protential creditors. I would also remind her of her commintment as an accountant to uphold the rules and regulations of general accepted accounting principle (GAAP).
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Good answer, marylincathey. I like that you described Rollins' plans as "fraudulent", because "fraud" is what this is, and that's a very important word in this context, from a legal liability standpoint.