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Ethics: Accounting for Revenues and Expenses. Equipment Group produces excavating equipment for contractors.
Ethics: Accounting for Revenues and Expenses. Equipment Group produces excavating equipment for contractors. Equipment Group is working on the annual financial statements for its shareholders, who are expecting profits of $121,000,000 for the year ending December 31. The controller (Jeff) and CFO (Kathy) will receive bonuses totaling 50 percent of their salaries if company profits exceed $120,000,000. Sarah is a staff accountant who works for the controller. One week before the end of the fiscal year, a customer decides to delay a significant purchase of equipment until March of the next year. As a result, Equipment Group's profits will decrease by $3,000,000 to $118,000,000 for the year.
Jeff, the controller, approaches Sarah and asks her to think of a way to increase profits by $2,500,000. He suggests looking at sales occurring in early January and perhaps moving them up to December. He also hints that some December expenses could be pushed back and recorded in January.
