Buff Tech, Inc. sells computer components and plans to borrow some money to expand. The company has a 12/31 year-end. After reading about earnings management (refer back to Chapter 4), Bucky, the owner has decided he should try to accelerate some sales to improve his financial statement ratios. He has called his best customers and asked them to make their usual January purchases and take delivery of the goods by December 31. He told the customers he would allow them until the end of February to pay for the purchases, just as if they had made the purchases in January.

Note: For revenue recognition purposes, the performance obligation was satisfied by 12/31.

Question:

What are the ethical implications of this plan? What ratios will be improved by accelerating these sales? What about future implications?

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