Revenue recognition
Response to the following problem:
Horizon Corporation manufactures personal computers. The company began operations in 2011 and reported profits for the years 2011 through 2014. Due primarily to increased competition and price slashing in the industry, 2015's income statement reported a loss of $20 million. Just before the end of the 2016 fiscal year, a memo from the company's chief financial officer to Jim Fielding, the company controller, included the following comments:
If we don't do something about the large amount of unsold computers already manufactured, our auditors will require us to write them off. The resulting loss for 2016 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's president and he will accept the merchandise and acknowledge the shipment as a purchase. We can record the sale in 2016 which will boost profits to an acceptable level. Then J.B. Sales will simply return the merchandise in 2017 after the financial statements have been issued.
Required:
Discuss the ethical dilemma faced by Jim Fielding.