Issue 2. The net income of Solas Photography Company decreased sharply during 20X6. Lisa Almond, owner of the company, anticipates the need for a bank loan in 20X7. Late in 20X6, Almond instructed Brad Lail, the accountant and a personal friend of yours, to record a $10,000 sale of portraits to the Almond family, even though the photos will not be shot until January 20X7. Almond also told Lail not to make the following December 31, 20X6, adjusting entries:

Salaries owed to employees . . . . . . . . .$10,000 Prepaid insurance that has expired . . . . .1,000 Requirements 1. Compute the overall effect of these transactions on the company’s reported income for 20X6. Is reported net income overstated or understated?

2. Why did Almond take these actions? Are they ethical? Give your reason, identifying the parties helped and the parties harmed by Almond’s action. Consult the Decision Framework for Making Ethical Judgments in Chapter 1. Which factor (economic, legal, or ethical)

seems to be taking precedence? Identify the stakeholders and the potential consequences to each.

3. As a personal friend of Brad’s, what advice would you give him?