Chris P. Bacon is the chief accountant for CV Industries, a large manufacturing company. In addition to its normal business activities, the company has excess warehouse space that it rents out to local businesses. Because the typical renter is a small business, CV Industries requires renters to make lease payments for the entire rental period on the day the lease is signed. As a result, CV Industries typically reports a large unearned rent balance on its balance sheet. After making adjusting entries for the current year, Chris prepares the adjusted trial balance and notices that the company’s earnings will decline significantly. He presents the adjusted trial balance to the company’s CFO, Antonio Beldin, who is concerned about the earnings decline. Mr. Beldin notices the large unearned rent balance and proposes making an additional end-of-period adjusting entry to recognize the entire unearned rent balance as revenue in the current period. Chris protests, reminding Mr. Beldin that the adjusting entry for unearned rent has already been made. Mr. Beldin assures Chris that his proposal is acceptable, reminding Chris that “because we have already received the cash, we have the right to recognize the revenue in the current period.” He instructs Chris to make the additional adjusting journal entry. Chris is hesitant to follow these instructions, but he is sensitive to the company’s emphasis on earnings growth and makes the adjusting entry as instructed.1. Is Chris behaving ethically? Why?2. Who is affected by Chris’s decision?

Question
Asked Sep 25, 2019
82 views
Chris P. Bacon is the chief accountant for CV Industries, a large manufacturing company. In addition to its normal business activities, the company has excess warehouse space that it rents out to local businesses. Because the typical renter is a small business, CV Industries requires renters to make lease payments for the entire rental period on the day the lease is signed. As a result, CV Industries typically reports a large unearned rent balance on its balance sheet.
 
After making adjusting entries for the current year, Chris prepares the adjusted trial balance and notices that the company’s earnings will decline significantly. He presents the adjusted trial balance to the company’s CFO, Antonio Beldin, who is concerned about the earnings decline. Mr. Beldin notices the large unearned rent balance and proposes making an additional end-of-period adjusting entry to recognize the entire unearned rent balance as revenue in the current period. Chris protests, reminding Mr. Beldin that the adjusting entry for unearned rent has already been made. Mr. Beldin assures Chris that his proposal is acceptable, reminding Chris that “because we have already received the cash, we have the right to recognize the revenue in the current period.” He instructs Chris to make the additional adjusting journal entry.
 
Chris is hesitant to follow these instructions, but he is sensitive to the company’s emphasis on earnings growth and makes the adjusting entry as instructed.
1. Is Chris behaving ethically? Why?
2. Who is affected by Chris’s decision?
check_circle

Expert Answer

Step 1

1.) Chris's behaviour is unethical.

As per the accounting principles, any unearned income is recorded in books of accounts as liabilty & is only recognized as revenue when it actually is earned for that particular period.  By posting the entry of entire rent received as revenue, Chris has behaved unethically as this method is termed as Cash basis of accounting, which is ...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: I cannot figure out how to do this two department problem   Patterson Laboratories, Inc., produces o...

A: The amounts of common Manufacturing overhead are not considered as the apportionment of the expense ...

question_answer

Q: Could you please explain me how to solve the ploblem attach

A: Definition of Cash Flow Statement:Cash Flow statement is a financial statement that provide all the ...

question_answer

Q: On January 1, the first day of its fiscal year, Ebert Company issued $35,000,000 of 10-year, 6% bond...

A: A.1Journalize sale of bonds.

question_answer

Q: Howe to solve for ?  On open of the columns

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question s...

question_answer

Q: Problem 3-4 (Algorithmic)Inventories (LO 3.2) Kevin owns a retail store, and during the current year...

A: Compute the cost of goods sold: 

question_answer

Q: Find the cost of each item in 11 years, assuming an inflation rate of 11% (compounded continuously)....

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and s...

question_answer

Q: Revenue and Expense Recognition Aunt Bea's Catering Service provides catering service for special oc...

A: a) The total revenue for 2013 is $228,500 and total expenses for 2013 is $71,720.

question_answer

Q: Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest.  Alternatively, Meli...

A: As the question contains multiple sub-parts and student has not specifically mentioned which sub-par...

question_answer

Q: Kayak Co. budgeted the following cash recelpts (excluding cash recelpts from loans recelved) and cas...

A: Cash budgets are prepared to determine the inflow and outflow of cash during a given period.