Question 1. As the CFO of SAL Inc., you discover a misstatement that overstated net income in the prior year’s financial statements. The misleading financial statements appear in the company’s annual report that was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president about this misstatement, you gather your courage to inform him. The president suggests that you simply adjust this year’s financial statements since what the banks and creditors don’t know won’t hurt them.
Answer the following questions related to the above information:
- Who are the stakeholders in this situation?
- What are the ethical issues involved in this situation?
- What would you as a CFO do in this situation?
Question 2. Wilderness Guide Services, Inc., performs adjusting entries every month, but closes its accounts only at year-end. The company ’s year-end adjusted trial balance dated December 31,2002, follows:
WILDERNESS GUIDE SERVICES, INC.
Adjusted Trial Balance
December 31, 2002
|
Cash
|
$12,200
|
|
|
Accounts receivable
|
31,000
|
|
|
Camping supplies
|
7,900
|
|
|
Unexpired insurance policies
|
2,400
|
|
|
Equipment
|
70,000
|
|
|
Accumulated depreciation: equipment
|
|
$60,000
|
|
Notes payable (due 4/1/03)
|
|
18,000
|
|
Accounts payable
|
|
9,500
|
|
Capital stock
|
|
25,000
|
|
Retained earnings
|
|
15,000
|
|
Dividends
|
1,000
|
|
|
Guide revenue earned
|
|
102,000
|
|
Salary expense
|
87,500
|
|
|
Camping supply expense
|
1,200
|
|
|
Insurance expense
|
9,600
|
|
|
Depreciation expense: equipment
|
5,000
|
|
|
Interest expense
|
1,700
|
|
|
|
$229,500
|
$229,500
|
Prepare an income statement for the year ended December 31, 2002.