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 Russells 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 years profits. He believes that such a dip could cause a significant drop in the market price of Russells stock and make the company a takeover target.

To avoid this possibility, the company president calls in Zoe Baas, controller, to discuss this periods 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 cant let our stock price be hammered down! Zoe didnt 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 presidents request.

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 presidents request and (b) Zoe dating the adjusting entries December 31?
3. Can Zoe accrue revenues, defer expenses, and still be ethical?
4. Can Zoes accrued revenues and deferred expenses be illegal?
5. Who do you think can discover Zoes accrued revenues and deferred expenses?