Question
The net income of Delmonte's, a department store, decreased sharply during 20X5. Mark Delmonte, owner of the store anticipates the need for a bank loan
The net income of Delmonte's, a department store, decreased sharply during 20X5. Mark Delmonte, owner of the store anticipates the need for a bank loan in 20X6. Late in 20X5 he instructed the accountant to record a P26,000 of furniture to the Delmonte family, even though the goods will not be shipped from the manufacturer until January 20X6. Delmonte also told the accountant not to make the following December 31, 20X5, adjusting entries:
Salaries owed to employees P18,000
Prepaid insurance that has expired P5,300
Requirements:
1. Compute the overall effect of these transactions on the store's reported income for 20X5.
2. Why did Delmonte take this action? Is this action ethical? Give your reason, identifying the parties helped and the parties harmed by Delmonte's action.
3. As a personal friend, what advice would you give the accountant?
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