The net income of Dusek Photography Company decreased sharply during 2016. Patty Dusek, owner of the company, anticipates the need for a bank loan in 2017. Late in 2016, Dusek instructed Tim Loftus, the accountant, and a personal friend of yours, to record a $15,000 sale of portraits to the Dusek Family. The photos will not be shot until January, 2017. Dusek also told Loftus NOT to make the following December 31, 2016, adjusting entries:
- Salaries owed to employees $14,000
- Prepaid Insurance that has expired $ 2,000
1.Compute the overall effect of the transactions and report in a full sentence. Is the income overstated or understated?
2. Are these actions ethical on the part of Dusek? Give support for your thinking. Who are the stakeholders, who is harmed? Which factor legal or ethical seems to be taking precedence? Identify the potential consequences.
3. As a personal friend of Tim’s, what advice do you give him? (assume he asked)