Adjusting Entries

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ISSUES IN ACCOUNTING EDUCATION Vol. 27, No. 2 2012 pp. 493–524 American Accounting Association DOI: 10.2308/iace-50124 How Adjusting Entries Affect the Quality of Financial Reporting: The Case of Frosty Co. Jason C. Porter ABSTRACT: Recent accounting scandals have emphasized the need to think beyond debits and credits. Accounting students must understand the effects of transactions on a company’s financial position, as well as the pressures and incentives they will someday face to misrepresent that position. This case introduces students in intermediate financial accounting courses to both of these important objectives. First, the case improves students’ critical thinking skills in accounting by allowing them to determine if…show more content…
The three of them were to discuss the upcoming audit and the earnings announcement and how they would impact the proposed SEO. He rubbed his tired eyes and headed home to get a little sleep. MEETING OF THE ACCOUNTING STAFF: 10:30AM Simon looked up as the divisional controllers, Elsa Pilebody and John Mortenson, came into his office. Elsa worked with Frosty Co.’s fridge and freezer division; John worked with the ice maker and snow cone machine division. So far, Simon had enjoyed working with them, especially since neither of them seemed to resent him stepping in as their new boss. They were both smiling as they came through the door, and their good-natured teasing started almost before they had finished shaking hands. ‘‘Sorry we’re a little late,’’ Elsa started, ‘‘but John had to stop for the last jelly donut.’’ ‘‘I did not!’’ John said indignantly. He looked at Simon. ‘‘It was chocolate.’’ Because of his busy schedule that day, Simon got down to business instead of joining the banter as he normally would have done. ‘‘Thanks for coming by, Elsa and John. We have several issues to discuss before I have to meet with Jane and Doug this afternoon.’’ He paused for a second. ‘‘I’ve spent the past week going over the financial statements. Overall, they look well done, but I need clarification on a few details. To start with, I want to discuss the construction project we began last year.’’ ‘‘That’s our big project at the moment. We’re building a new
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