Ethics in Action 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?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
BuyFind

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

Solutions

Chapter
Section
Chapter 3, Problem 1TIF
Textbook Problem

Ethics in Action

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. 1. Is Chris behaving ethically? Why?
  2. 2. Who is affected by Chris’s decision?

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Chapter 3 Solutions

Financial And Managerial Accounting
Ch. 3 - Accounts requiring adjustment Indicate with a Yes...Ch. 3 - Type of adjustment Classify the following items as...Ch. 3 - Adjustment for accrued revenues At the end of the...Ch. 3 - Adjustment for accrued expense Prospect Realty Co....Ch. 3 - Adjustment for unearned revenue On June 1, 20Y2,...Ch. 3 - Adjustment for prepaid expense The prepaid...Ch. 3 - Adjustment for depreciation The estimated amount...Ch. 3 - Effect of omitting adjustments For the year ending...Ch. 3 - Effect of errors on adjusted trial balance For...Ch. 3 - Vertical analysis Two income statements for Cornea...Ch. 3 - Classifying types of adjustments Classify the...Ch. 3 - Classifying adjusting entries The following...Ch. 3 - Adjusting entry for accrued fees At the end of the...Ch. 3 - Effect of omitting adjusting entry Paradise Realty...Ch. 3 - Adjusting entries for accrued salaries Paradise...Ch. 3 - Determining wages paid The wages payable and wages...Ch. 3 - Effect of omitting adjusting entry Accrued...Ch. 3 - Effect of omitting adjusting entry When preparing...Ch. 3 - Adjusting entries for unearned fees The balance in...Ch. 3 - Effect of omitting adjusting entry At the end of...Ch. 3 - Adjusting entry for supplies The balance in the...Ch. 3 - Determining supplies purchased The supplies and...Ch. 3 - Effect of omitting adjusting entry At March 31,...Ch. 3 - Adjusting entries for prepaid insurance The...Ch. 3 - Adjusting entries for prepaid insurance The...Ch. 3 - Adjusting entries for unearned and accrued fees...Ch. 3 - Adjusting entries for prepaid and accrued taxes...Ch. 3 - Adjustment for depreciation The estimated amount...Ch. 3 - Determining fixed assets book value The balance in...Ch. 3 - Book value of fixed assets In a recent balance...Ch. 3 - Effects of errors on financial statements For a...Ch. 3 - Effects of errors on financial statements For a...Ch. 3 - Effects of errors on financial statements The...Ch. 3 - Effects of errors on financial statements If the...Ch. 3 - Adjusting entries for depreciation; effect of...Ch. 3 - Adjusting entries from trial balances The...Ch. 3 - Adjusting entries from trial balances The...Ch. 3 - Adjusting entries On March 31, the following data...Ch. 3 - Adjusting entries Selected account balances before...Ch. 3 - Adjusting entries Trident Repairs Service, an...Ch. 3 - Adjusting entries Good Note Company specializes in...Ch. 3 - Adjusting entries and adjusted trial balances...Ch. 3 - Adjusting entries and errors At the end of April,...Ch. 3 - Adjusting entries On May 31, the following data...Ch. 3 - Adjusting entries Selected account balances before...Ch. 3 - Adjusting entries Crazy Mountain Outfitters Co.,...Ch. 3 - Adjusting entries The Signage Company specializes...Ch. 3 - Adjusting entries and adjusted trial balances...Ch. 3 - Adjusting entries and errors At the end of August,...Ch. 3 - The unadjusted trial balance that you prepared for...Ch. 3 - Analyze Amazon.com Amazon.com, Inc. (AMZN) is the...Ch. 3 - Analyze Pandora Media Pandora Media, Inc. (P)...Ch. 3 - Analyze World Wrestling Entertainment World...Ch. 3 - Analyze Chipotle Mexican Grill Chipotle Mexican...Ch. 3 - Analyze Nike The following data are taken from...Ch. 3 - Analyze and Compare ATT and Verizon Communications...Ch. 3 - Ethics in Action Chris P. Bacon is the chief...Ch. 3 - Loan application Daryl Kirby opened Squid Realty...Ch. 3 - Communication Delta Air Lines is a major passenger...Ch. 3 - Adjustments and financial statements Several years...

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