The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2015. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2016. Late in 2015, Steinbach instructs the company's accountant to record $ 2,000 service revenue for landscape services for the Steinbach family, even though the services will not be performed until January 2016. Steinbach also tells the accountant not to make the following December 31, 2015, adjusting entries:

Salaries owed to employees ..........$ 900

Prepaid insurance that has expired ...... 400

Requirements

1. Compute the overall effects of these transactions on the company’s reported net income for 2015.

2. Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach’s action.

3. As a personal friend, what advice would you give the accountant?