Nicole Martins is the controller at UMC Corp., a publicly traded manufacturing company. Last year, UMC had annual sales revenue of $15 million. The first quarter of this year just ended, and Nicole needs to prepare a trial balance so she can prepare the quarterly financial statements. However, the trial balance is out of balance by $750 (credits exceed debits). Nicole is running out of time aside as the report is due today! Therefore, she decides to balance by plugging the $750 into the account called depreciation expense account. She chooses this account because it is one that is adjusted during the year end. Three basic principles of accrual accounting are that revenue must be recognized in the period it is earned, expenses must be recorded in the period they support revenue and are generated, and debits equal credits.  Does this violate any of these basic principles?  If so, which ones?  When the trial balance does not balance, what might this indicate?  Explain the ethical issues the case involves.  If you were Nicole, what would you do?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Nicole Martins is the controller at UMC Corp., a publicly traded manufacturing company. Last year, UMC had annual sales revenue of $15 million. The first quarter of this year just ended, and Nicole needs to prepare a trial balance so she can prepare the quarterly financial statements. However, the trial balance is out of balance by $750 (credits exceed debits). Nicole is running out of time aside as the report is due today! Therefore, she decides to balance by plugging the $750 into the account called depreciation expense account. She chooses this account because it is one that is adjusted during the year end. Three basic principles of accrual accounting are that revenue must be recognized in the period it is earned, expenses must be recorded in the period they support revenue and are generated, and debits equal credits.

  1.  Does this violate any of these basic principles?  If so, which ones?
  2.  When the trial balance does not balance, what might this indicate?
  3.  Explain the ethical issues the case involves.
  4.  If you were Nicole, what would you do?
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