The net income of Steinbach and Sons, a department store, decreased sharply during 2014. Mort Steinbach, manager of store, anticipates the need for a bank loan in 2015. Late in 2014, Steinbach instructs store's accountant to record a $2,000 sale of furniture to Steinbach family, even though the goods will not be shipped from manufacturer until January 2015. Steinbach also tells accountant not to make the subsequent 31st December, 2014, adjusting entries:
Salaries owed to employees ......................................................................................................$900
Prepaid insurance that has expired............................................................................................400
1. Calculate the overall effects of these transactions on the store's reported income for 2014.
2. Why is Steinbach taking this action? Is his action ethical? Provide your reason, identifying the parties helped and parties harmed by Steinbach's action.
3. As a personal friend, what advice would you provide to the accountant?