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?

Q: Expert Answer

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 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 notices a significant decline in the earnings of the company and reports to the CFO. The CFO instructed him to pass an adjusting 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 finally Mr. C passes the adjusting entry. To explain: If Mr. C is behaving ethically or not? Explanation The accrual basis of accounting states that the revenues can only be reported in the period when they are earned. If it is reported before it’s earned, then it doesn’t signify the actual revenue of the current period. After knowing this the chief accountant Mr... 2. To determine The parties affected by C’s decision

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Corporate Financial Accounting

14th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781305653535

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BuyFind

Corporate Financial Accounting

14th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781305653535

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Answer 3

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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 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 notices a significant decline in the earnings of the company and reports to the CFO. The CFO instructed him to pass an adjusting 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 finally Mr. C passes the adjusting entry.

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

Explanation of Solution

The accrual basis of accounting states that the revenues can only be reported in the period when they are earned. If it is reported before it’s earned, then it doesn’t signify the actual revenue of the current period.

After knowing this the chief accountant Mr...

Answer 6

2.

To determine

The parties affected by C’s decision

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