EthicsRWP2-6 Larry has been the chief financial officer (CFO) of Maxima Auto Service for the past 10 years.The company has reported profits each year it's been in business. However, this year has been a toughone. Increased competition and the rising costs of labor have reduced the company's profits. OnDecember 30, Larry informs Robert, the company's president and Larry's closest friend for the past 10years, that it looks like the company will report a net loss (total expenses will be greater than totalrevenues) of about $50,000 this year.The next day, December 31, while Larry is preparing the year-end reports, Robert stops by Larry's officeto tell him that an additional $75,000 of revenues needs to be reported and that the company can nowreport a profit. When Larry asks about the source of the $75,000, Robert tells him, "Earlier in the monthsome customers paid for auto services with cash, and with this cash I bought additional assets for thecompany. That's why the $75,000 never showed up in the bank statement. I just forgot to tell you aboutthis earlier." When Larry asks for more specifics about these transactions, Robert mumbles, "I can'trecall where I placed the customer sales invoices or the purchase receipts for the assets, but don'tworry; I know they're here somewhere. We've been friends for a lot of years and you can trust me.Now, let's hurry and finish those reports and I'll treat you to dinner tonight at the restaurant of yourchoice."Required:1. Understand the reporting effect: What effect does reporting additional revenue have on reportedprofit?2. Specify the options: If the additional revenue is not reported, do both Robert and Larry potentiallylose benefits?3. Identify the impact: Does reporting the additional revenue stregthen the company's financialappearance to those outside the company?4. Make a decision: Should Larry report the additional revenue without source documents?

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VP2-6 Larry has been the chief financial officer (CFO) of Maxima Auto Service for the past 10 yea e company has reported profits each year it's been in business. However, this year has been a to e. Increased competition and the rising costs of labor have reduced the company's profits. On cember 30, Larry informs Robert, the company's president and Larry's closest friend for the past ars, that it looks like the company will report a net loss (total expenses will be greater than total wenues) of about $50,000 this year. e next day, December 31, while Larry is preparing the year-end reports, Robert stops by Larry's c tell him that an additional $75,000 of revenues needs to be reported and that the company can port a profit. When Larry asks about the source of the $75,000, Robert tells him, "Earlier in the m me customers paid for auto services with cash, and with this cash I bought additional assets for t mpany. That's why the $75,000 never showed up in the bank statement. I just forgot to tell you

VP2-6 Larry has been the chief financial officer (CFO) of Maxima Auto Service for the past 10 yea e company has reported profits each year it's been in business. However, this year has been a to e. Increased competition and the rising costs of labor have reduced the company's profits. On cember 30, Larry informs Robert, the company's president and Larry's closest friend for the past ars, that it looks like the company will report a net loss (total expenses will be greater than total wenues) of about $50,000 this year. e next day, December 31, while Larry is preparing the year-end reports, Robert stops by Larry's c tell him that an additional $75,000 of revenues needs to be reported and that the company can port a profit. When Larry asks about the source of the $75,000, Robert tells him, "Earlier in the m me customers paid for auto services with cash, and with this cash I bought additional assets for t mpany. That's why the $75,000 never showed up in the bank statement. I just forgot to tell you

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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