The net income of Summit Photography Company decreased sharply during 2018. Anette Summit, the owner of the

Question:

The net income of Summit Photography Company decreased sharply during 2018. Anette Summit, the owner of the company, anticipates the need for a bank loan in 2019. Late in 2018, Summit instructed Tim Loftus, the company’s controller, to record a $15,000 sale of portraits to the Summit family, even though the photos will not be shot until January 2019. Summit also told Loftus not to make the following December 31, 2018, adjusting entries:

Salaries owed to employees ................ $14,000
Prepaid insurance that has expired ...... $2,000

Requirements
1. Calculate the overall effect of these transactions on the company’s reported income for 2018. Is reported net income overstated or understated?

2. Why did Summit take these actions? Are they ethical? Give your reason, identifying the parties helped and the parties harmed by Summit’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. What advice would you give to Loftus?

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...

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