1. Use the following information to answer questions 18 and 19.

   Bike Ltd is a manufacturing company that produces components used in bicycles. The current compensation scheme allows the CEO to achieve a bonus if accounting profits are greater than $1,000,000.

   To ensure that accounting profits meet the bonus target, the CEO requires Lily, the managerial accountant of Bike Ltd, to rename "accounting and marketing departments" as "production supporting departments" in accounting books so that accounting and marketing expenditures can be classified into manufacturing overhead accounts.

   Lily feels uncomfortable with the CEO's request. Lily believes that the CEO's intention is to "cook the books" that will misrepresent the accounting information. However, the CEO suggests that she will be discharged if she does not follow the CEO's advice.

2. Question 18

   4 Points

   How does the misclassification affect current and future balance sheet and income statement?

   Explain concisely.

3. Question 19

   4 Points

   What are ethical threats to the faithful representation of accounting information illustrated in this case study?

   If you were Lily, how would you deal with the CEO's request?

   Your answer must cite relevant ethical standards. Discuss concisely.