The net income of Lenore Photography Company decreased sharply during 2016. Lenore, the owner of the company, anticipates the needs for a bank loan in 2017. Late in 2016, Lenore instructed Graham, the accountant and a personal friend of yours, to record a $15,000 sale of portraits to the Chase family, even thought the photos will not be short until January 2017. Lenore also told Graham not to make the following December 31, 2016 adjusting entries:

Salaries owed to employees $14,000

Prepaid insurance that has expired $ 2,000

Requirements:

1. Compute the overall effect of these transactions on the company's reported income for 2016. Is reported net income overstated or understated?

2. Why did Lenore take these actions? Are they ethical? Give your reason, identifying the parties helped and the parties harmed by her actions.

3. What advice would you give Graham?