What is a little deceit among friends? Ethics Writing Glenns Cleaning Services Company is experiencing cash flow problems and needs a loan. Glenn has a friend who is willing to lend him the money he needs provided she can be convinced that he will be able to repay the debt. Glenn has assured his friend that his business is viable, but his friend has asked to see the companys financial statements. Glenns accountant produced the following financial statements:

Income Statement

Revenue $ 38,000

Expense 70,000

Net Income $ (32,000)

Balance Sheet

Assets $ 85,000

Liabilities $ 35,000

Stockholders Equity

Common Stock 82,000

Retained Earnings (32,000)

Total Liabilities and

Stockholders Equity $ 85,000

Glenn made the following adjustments to these statements before showing them to his friend. He recorded $82,000 of revenue on account from Barrymore Manufacturing Company for a contract to clean its headquarters office building that was still being negotiated for the next month. Barrymore had scheduled a meeting to sign a contract the following week, so Glenn was sure that he would get the job. Barrymore was a reputable company, and Glenn was confident that he could ultimately collect the $82,000. Also, he subtracted $30,000 of accrued salaries expense and the corresponding liability. He reasoned that since he had not paid the employees, he had not incurred any expense.

Required

Reconstruct the income statement and balance sheet as they would appear after Glenns adjustments. Comment on the accuracy of the adjusted financial statements. Include the restated financial statements (or a worksheet showing the before and after amounts) in your post.

Suppose you are Glenn and the $30,000 you owe your employees is due next week. If you are unable to pay them, they will quit and the business will go bankrupt. You are sure you will be able to repay your friend when your employees perform the $82,000 of services for Barrymore and you collect the cash. However, your friend is risk averse and is not likely to make the loan based on the financial statements your accountant prepared. Would you make the changes that Glenn made to get the loan and thereby save your company? Defend your position with a rational explanation-meaning don't just give me your opinion but apply what you have learned about GAAP.

Discuss the elements of the fraud triangle as they apply to Glenns decision to change the financial statements to reflect more favorable results. Do not just tell me what the elements of the fraud triangle are. Analyze how they affect this situation.