Benson and Jencks is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Benson and Jencks introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success.

The success of the product has Margaret Jones, the manager of the New Products division, worried, however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results.

Top management, however, declined the tests. Ms. Jonesthen instructed you, the accountant, not to prorate insuranceor rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable

1.What if anything is wrong with what she is asking you to do?

2.Are there any Principles that would apply to this scenario? If so, what are they and how do they apply?

3.Describe the alternatives that you as the accountant would have in this situation and indicate which alternative that you feel would be the best one.