ba) Margie Johnson is a staff accountant at ToolEx Company, a manufacturer of to
ID: 2576587 • Letter: B
Question
ba) Margie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to “make this happen.” Margie’s boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated. Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie’s boss asks her not to make the adjusting entry for shrinkage this period. He assures her that they will get “caught up” on shrinkage in the next period, after the pressure is off to reach this period’s earnings goal. Margie’s boss asks her to do this as a personal favor to him. What should Margie do in this situation? Why?
b)Anstead Co. is experiencing a decrease in sales and operating income for the fiscal year ending October 31. Ryan Frazier, controller of Anstead Co., has suggested that all orders received before the end of the fiscal year be shipped by midnight, October 31, even if the shipping department must work overtime. Because Anstead Co. ships all merchandise FOB shipping point, it would record all such shipments as sales for the year ending October 31, thereby offsetting some of the decreases in sales and operating income. Discuss whether Ryan Frazier is behaving in a professional manner.
Explanation / Answer
1. Margie Johnson should follow ethics and accounting principle i.e he should make the financial statement which gives true and fair view as well as it is responsibility of management to follow accounting principle and make financial statement which are free from error. Therefore earning should be correctly disclosed and accounting of loss of inventory due to shrinkage should be made . Accountant should talk to those charged with governance of company about the pressure boss is making on him regarding the manuplation of account and should work accordingly.
2. Yes Ryan Frazier is behaving in professional manner. He is not adopting any of unethical practice as he just want fast processing of order to include that order sale in fiscal year. He is operating with in allowed framework and not violating accounting rules so he is behaving in professional manner.
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