Question

Assistance with accounting question.. Compute the overall effects of these transactions on the stores reported income for 2015.

Answer 1

Ethical Issue 3-1 (Page 204)

The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2015. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2016. Late in 2015, Steinbach instructs the company’s accountant to record a $2,000 service revenue for landscape services for the Steinbach family, even though the service will not be performed until January 2016. Steinbach also tells the accountant not to make the following December 31, 2015, adjusting entries:
Salaries owed to employees..................................................... $900
Prepaid insurance that has expired.......................................... 400
Requirements
1. Compute the overall effects of these transactions on the stores reported income for 2015.
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. (Challenge)
3. As a personal friend, what advice would you give the accountant? (Challenge)

Answer 2

Im looking for help on number one. I have the other two completed.

Answer 3

Net income is calculated by Revenues minus Expenses (Revenue – expenses = net income). This can be found on the income statement. Prepaid insurance and salaries are both expenses. Service revenue of $2,000 is a revenue an unearned revenue since the service will not be performed until January 2016.

The calculation would be:

$2,000 - $1,300= $700

**The $1,300 is the salaries and prepaid insurance added together. 

Answer 4

@RhondaSommer

Answer 5

mmmhhmmm

Answer 6

what are you confused on?

Answer 7

1. Compute the overall effects of these transactions on the stores reported income for 2015.

Just checking to see if my answer is correct.

Answer 8

I think the idea is he *left off* the entries 900 and 400
in other words, if you leave off expenses it makes it look like your net income is bigger than it really is. The total effect is to make the income appear larger by
2000+900+400 = 3300 (too high)

Answer 9

I dont know. I think im gonna email my professor and leave it with the answer I came up with.

Answer 10

OK, but what does this mean:

Steinbach also tells the accountant not to make the following December 31, 2015, adjusting entries:
Salaries owed to employees..................................................... $900
Prepaid insurance that has expired.......................................... 400

*not* to make the entries means "don't enter them"

If he did the correct thing, he would make those entries, and not include the $2000 revenue (because it did not happen yet).
Say the net revenue was 5000.
then he does make the entries. the net revenue would go down by 1300 to 3700

Now compare that to what he did do:
he added 2000 of revenue to the 5000 to get 7000

so instead of 3700, he shows 7000. that is 3300 than it should be

Answer 11

I completely get what your saying. Im just not sure if Im supposed to post the correct way or the way the accountant was told to do it. I guess ill just post both.

Answer 12

The question is
1. Compute the overall effects of these transactions on the stores reported income for 2015.

The overall effect of the transactions is to falsely inflate the net income by $3300

Answer 13

Thank you for the help. I adjusted my answer.