Question

The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2019. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2020. Late in 2019, Steinbach instructs the company’s accountant to record $2,000 service revenue for landscape services for the Steinbach family, even though the services will not be performed until January 2020. Steinbach also tells the accountant not to make the following December 31, 2019, adjusting entries:

Salaries owed to employees	$ 900
Prepaid insurance that has expired	400

Requirements

1.  Compute the overall effects of these transactions on the company’s reported net income for 2019.

2.  Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach’s action.

3.  As a personal friend, what advice would you give the accountant?

Answer 1

1
	Improperly Service Revenue	$2,000
	Accrue salaries expenses	$900
	Insurance expenses	$400
	Total overstatement of net income	$3,300
2	This is an unethical action. Steinbach has instructed the company’s accountant
	not to record any adjusting entries because the company requires funds and
	wants to improve the income statement’s performance. The parties harmed by
	Steinbach’s action be the bank who provides the loan and Steinbach & Sons
	will be benefited.
3	As a personal friend, the advice by me to the accountant is that always do your
	duties while maintaining professional ethics and integrity.