ACC 121 Financial Accounting John Lunde, the president of Gladden Manufacturing, is eligible for a bonus if net income increases by 15 percent He has a simple plan designed to guarantee that he gets his bonus He knows that Samuel Adams negotiated a large order on December 20, 2013 The goods will not be shipped until the middle of January, but since they are custom manufactured and cannot be returned once theyre ordered, he believes the revenue should be recognized in December This will give him the revenue needed so that net income increases by 15 percent Explaining the situation to the controller, Beth Duncan, he says, The accounting rules require a company to recognize revenue when the order has been received, which is in 2013, so I get my bonus I have earned it and I do not want to lose it just because the goods were not shipped until 2014 Questions What is the ethical dilemma in this scenario (Do not merely recite the facts of the scenario ) Current accounting thought requires revenue not be recognized until the goods are delivered Why is that important in this situation Identify all the interested parties (directly and indirectly) affected by this decision Who benefits Who is harmed John Lunde, the president of Gladden Manufacturing, is eligible for a bonus if net income increases by 15 percent How will this threshold (15 percent) possibly affect Johns behavior What problems could develop by the use of the measure alone If Beth is due for a yearly review and pay increase next month, how might this affect her behavior towards her boss so she gets a good raise That is, are there any suggestions Beth could make or actions she could take to conform to GAAP and still get her raise Based on your knowledge of GAAP, what should Beth do What would you do Explain your decision

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ACC 121 Financial Accounting John Lunde, the president of Gladden Manufacturing, is eligible for a bonus if net income increases by 15 percent. He has

ACC 121 Financial Accounting

John Lunde, the president of Gladden Manufacturing, is eligible for a bonus if net income increases by 15 percent. He has a simple plan designed to guarantee that he gets his bonus. He knows that Samuel Adams negotiated a large order on December 20, 2013. The goods will not be shipped until the middle of January, but since they are custom- manufactured and cannot be returned once theyre ordered, he believes the revenue should be recognized in December. This will give him the revenue needed so that net income increases by 15 percent. Explaining the situation to the controller, Beth Duncan, he says, The accounting rules require a company to recognize revenue when the order has been received, which is in 2013, so I get my bonus. I have earned it and I do not want to lose it just because the goods were not shipped until 2014.

Questions:

What is the ethical dilemma in this scenario? (Do not merely recite the facts of the scenario!)
Current accounting thought requires revenue not be recognized until the goods are delivered. Why is that important in this situation?
Identify all the interested parties (directly and indirectly) affected by this decision. Who benefits? Who is harmed?
John Lunde, the president of Gladden Manufacturing, is eligible for a bonus if net income increases by 15 percent. How will this threshold (15 percent) possibly affect Johns behavior? What problems could develop by the use of the measure alone?
If Beth is due for a yearly review and pay increase next month, how might this affect her behavior towards her boss so she gets a good raise? That is, are there any suggestions Beth could make or actions she could take to conform to GAAP and still get her raise?
Based on your knowledge of GAAP, what should Beth do?
What would you do? Explain your decision.