Type your questThe net income of Steinbach & Sons, a department store, decreased
ID: 2371933 • Letter: T
Question
Type your questThe net income of Steinbach & Sons, a department store, decreased sharply during 2009. Mort Steinbach, owner of the store, anticipates the need for a bank loan in 2010. Late in 2009, Steinbach instructs the store's accountant to record a $2,000 sale of furniture to the Steinbach family, even though the goods will not be shipped from the manufacturer until January 2010. Steinbach also tells the accountant to make the following December 31, 2009, adjusting entries:
Salaries owed to employees............................$900
Prepaid insurance that has expired..................$400
What will the effects be of the overall transactions on reported income for 2009? Why would Steinbach take these actions? Is this ethical? Why or why not? What advice would you give this accountant? Why? Is there an alternative action that is ethical to help the situation? Is there an alternative action that is not ethical that would help the situation?
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Explanation / Answer
You need to figure out the effects of the transactions. For example the sale of $2,000 should have been to unearned revenue, so your net income is overstated by $2,000 The Salaries were not posted as an expense so your expenses is understated and your net income is overstated. Your insurance expense is understated so your net income is overstated. So for all your transations net income is overstated by the total of all the amounts.
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