Question

In: Accounting

SECOND QUESTION (20 Marks) Tropicana is a popular family resort. Summer is the resort’s busy season;...

SECOND QUESTION

Tropicana is a popular family resort. Summer is the resort’s busy season; guests typically pay a deposit at least six months in advance to guarantee their reservations.

The resort is currently seeking new investment capital in order to expand operations. The more profitable Tropicana appears to be, the more interested potential investors will be.

Richard, an accountant employed by the resort, has been asked by his boss to include $2 million of unearned guest deposits in the computation of income for the current year.

Richard explained to his boss that because these deposits had not yet been earned, they should be reported in the balance sheet as liabilities, not in the income statement as revenue. Richard argued that reporting guest deposits as revenue would mislead investors.

Richard’s boss then demanded that he includes $2 million of unearned guest deposits in the computation of income or be fired. He then told Richard in an assuring tone, “Richard, you will never be held responsible for misleading potential investors because you are just following my orders.”

REQUIRED

  1. Should Richard overstate the resort’s income in order to keep his job? Discuss.
  2. Is Richard’s boss correct in saying that Richard cannot be held responsible for misleading potential investors? Discuss.

Solutions

Expert Solution

Answer :- a) No, Richard overstate the resort’s income in order to keep his job

As a accountant, Richard's main responsibility is to depict the genuine image of the books of records. The stores must be accounted for as liabilities in a critical position sheet, and they can't be appeared as income in the salary articulation.

Doing so won't just damage the standards of bookkeeping, it will likewise be dishonest for Richard. It is a break of the set of principles of expert bookkeepers.

Answer:-b) No,

Richard is completely liable for such activities. The financial specialists and society place their trust on proficient bookkeepers. On the off chance that a bookkeeper is found to have broken the moral code, severe legitimate move can be made against the person in question. It might include money related disciplines, prison terms, disavow of their expert title and as a rule, a terrible notoriety in the network.

It might make it exceptionally hard to track down future work in a similar field.


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