Concept explainers
1.
Fraud Case
In the present case, E is a building contractor and is facing its first annual net loss after losing number of big law-suits. To satisfy the creditors of the company who are pressuring for a positive net income for the year, H told A to record the short-term bank loan of $10,000 as “construction revenue” instead of a loan. According to him, this can work as turn-around for the company to show positive net income that could be corrected through reversing entry in the month of January when the loan is to be repaid.
To identify: The actions that affect the year-end income statement and balance sheet.
2.
To Explain: How the fraudulent actions affect the company’s creditors.
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Horngren's Financial & Managerial Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (5th Edition)
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