Chapter 3, Problem 3.1CP

1.

To determine

Ethical Case Study

Case Summary:

The manufacturing company C rented out their excess warehouse space to a local company in lease. The entire lease amount was received on the day, the lease was signed. So the company reports a huge amount of unearned rent in its balance sheet. While preparing the adjusted trial balance at the end of the accounting period, the chief accountant Mr. C noticed a significant decline in the earnings of the company and reported it to the CFO. The CFO instructed him to pass an adjusting entry for unearned rent (as rent revenue), as they have received the full cash, and have the right to recognize the revenue for the company in the current period. With lots of dilemma in his mind finally Mr. C passed the adjusting entry.

To explain: If Mr. C is behaving ethically or not?

2.

To determine

The parties affected by C’s decision