Chapter 3, Problem 3.7BYP

(a)

To determine

Ethical issue

Company R is recording the adjustment entries in order to show the profits in the current year. It will help in maintaining the price of stock at an above level. President of the company decides this accounting treatment due to change in legislation by the government. The action taken by the government affects the sales of the company. President of the company decides to change the accounting records in order to nullify the effect of legislation on stock price.

Adjusting entries: Adjusting entries are the entries that are recorded by the corporation to changes its accounting records into the accruals concepts. Before issuing the financial statement, the corporation is required to adjust the income statement and balance sheet is updated on the accrual concept.

To determine: The stakeholders of the organization which are affected by the variation in the legislation related to products.

(b)

(1)

To determine

The ethical issues raised in the situation of change in legislation according to the request of the president.

(2)

To determine

The ethical issues raised in the situation of recording the adjusting entries according to the request of the person M.

(c)

To determine

It is ethical to accrue the revenues and defer expenses to another year to which such revenues and expenses do not relate.