EC3:

Russell Company is a pesticide manufacturer. Its sales declined greatly this year due to the

passage of legislation outlawing the sale of several of Russell's chemical pesticides. In the

coming year, Russell will have environmentally safe and competitive chemicals to replace these

discontinued products. Sales in the next year are expected to greatly exceed any prior years. The

decline in sales and profits appears to be a one-year aberration. Even so, the company president

fears a large dip in the current year's profits. He believes that such a dip could cause a significant

drop in the market price of Russell's stock and make the company a takeover target.

To avoid this possibility, the company president calls in Zoe Baas, controller, to discuss this

period's year-end adjusting entries. He urges her to accrue every possible revenue and to defer as

many expenses as possible. He says to Zoe, "We need the revenues this year, and next year can

easily absorb expenses deferred from this year. We can't let our stock price be hammered down!"

Zoe didn't get around to recording the adjusting entries until January 17, but she dated the entries

December 31 as if they were recorded then. Zoe also made every effort to comply with the

president's request.

Weygandt, J.J., Kimmel, P.D., & Kieso, D.E (2018).

Respond thoroughly to the following questions in your PowerPoint presentation:

1.Who are the stakeholders in this situation?

2.What are the ethical considerations of (a) the president's request and (b) Zoe dating the

adjusting entries December 31?

3.Can Zoe accrue revenues, defer expenses, and still be ethical?

4.Can Zoe's accrued revenues and deferred expenses be illegal?

5.Who do you think can discover Zoe's accrued revenues and deferred expenses?