precious0197
May 7, 2007, 02:32 PM
The net income of Simon and Hobbs, a department store, decreased sharply during 2000. Carol Simon, owner of the store, anticipates the need for a bank loan in 2001. Late in 2000, Simon instructs the store's accountant to record a $10,000 sale of furniture to the Simon family, even though the goods will not be shipped from the manufacturer until January 2001. Simon also tells the accountant not to make the following December 31, 2000 adjusting entries:
Salaries owed to employees: $900
Prepaid insurance that has expired: $400
Why is Simon taking this action? Is her action ethical? Give your reason, identifying the parties helped and the parties harmed by Simon's action.
Instructors Tips
Make sure you consider this situation from all angles; Simon''s responsibility to the employees, Simon''s responsibility to the bankers, etc. Then take this one step further and do a little investigation. What principle of GAAP is Carol violating, is she breaking any laws (look at Sarbanes-Oxley act of 2002)?
Salaries owed to employees: $900
Prepaid insurance that has expired: $400
Why is Simon taking this action? Is her action ethical? Give your reason, identifying the parties helped and the parties harmed by Simon's action.
Instructors Tips
Make sure you consider this situation from all angles; Simon''s responsibility to the employees, Simon''s responsibility to the bankers, etc. Then take this one step further and do a little investigation. What principle of GAAP is Carol violating, is she breaking any laws (look at Sarbanes-Oxley act of 2002)?