Sundream Travel Agency Ltd. is a company that sells vacation packages and has a new Chief Executive

Question:

Sundream Travel Agency Ltd. is a company that sells vacation packages and has a new Chief Executive Officer (CEO) who is reviewing the draft December 31 year-end financial statements prepared by the company's controller. On these statements, the current assets total $400,000 while the current liabilities total $210,000, which results in a current ratio of 1.9:1. Several months ago, the company obtained some new bank financing that requires it to maintain a current ratio of at least 2:1. After reviewing the statements, the CEO suggests that the controller change the financial statements for two transactions.

The first transaction involves a vacation package that was sold to a ski club. The vacation starts in two months' time, in early March, and the club has paid $12,000 in advance for the trip. Since the cash has been received, the CEO suggests that the credit relating to this transaction be shown in sales revenue.

The second transaction relates to an accrual of $3,000 for December interest expense that is not due until early January. The CEO suggests that this accrual should not be made since the interest is not due until next year.

Instructions

(a) Who are the stakeholders in this situation?

(b) How will agreeing to the CEO's request have an impact on the financial statements?

(d) In what way does the existence of accounting standards enhance ethical behaviour?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...