Assume that you are the controller of a business that provides legal services to clients. Suppose that the company has had a tough year, so the revenues have been lagging behind, based on previous years standards. What would you do if your boss (the chief executive officer [CEO] of the company) asked you to reclassify a transaction to report loan proceeds of $150,000 as if the cash came from service fee revenue from clients instead.

1. How would following the CEOs advice impact the companys accounting equation?
2. How would reclassifying this one transaction change the outcome of the balance sheet, the income statement, and the statement of retained earnings?
3. How would making this reclassification change the perception that users of the financial statements would have of the companys current year success and future year potential?