The net income of Steinbach & Sons, a landscaping company, decreased sharply during 2016. Mort Steinbach, owner and manager of the company, anticipates the need for a bank loan in 2017. Late in 2016, Steinbach instructs the company’s accountant to record $2,000 service revenue for landscape ser-vices for the Steinbach family, even though the services will not be performed until January 2017. Steinbach also tells the accountant not to make the following December 31, 2016, adjusting entries:
Salaries owed to employees …………………$900
Prepaid insurance that has expired ……………400
1. Compute the overall effects of these transactions on the company’s reported net income for 2016.
2. Why is Steinbach taking this action? Is his action ethical? Give your reason, identifying the parties helped and the parties harmed by Steinbach’s action.
3. As a personal friend, what advice would you give the accountant?