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In: Accounting

The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2016. Mort Steinbach,...

The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2016. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2017. Late in 2016 Steinback instructs the company's accountant to record $20,000 service revenue for landscape services for the Steinbach family, even though the services will not performed until January 2017. Steinbach also tells the accountant not to make the following December 31, 2016 adjusting entries:


Salaries owed to employees $9,000
Prepaid Insurance that has expired $4,000

1. Why is Steinback taking this action? Is his action ethical? Give your reason.

Solutions

Expert Solution

Solution 1:

Steinbach is initiating such action because the company needs to have a healthy financial statement in order to be approved for the bank loan. Steinbach & Sons can do everything to get the loan as it seems by providing bank with faulty information. The false information represents to bank that Steinbach & Sons actually made more revenue than they are actually earned, By disclosing additional revenue of $20,000 for which service not performed and by not disclosing the salaries owed to employees in the amount of $9,000 and the prepaid insurance that has expired in the amount of $4,000.Therefore, this is not ethical because the company is doing it maliciously and knowingly, it was not an accounting mistake or delay, it was deliberate and a wrongful action since it will increase the chances of the company obtaining a bank loan and thereby increasing the risk of the bank of providing this loan to this company rather than to another company who disclose all facts correctly.

ekkarill92 answered 1 year ago
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