Accounting Discussion

Redcliffe company is a fertilizer manufacturer.  Its sales declined greatly this year due to the passage of legislation outlawing the sale of several Redcliffe’s chemical fertilizers.  In the coming year, Redcliffe will have environmentally safe and competitive chemicals to replace these discontinued products.  Sales in the next year are expected to greatly exceed any prior year’s.  The decline in sales and profits appears to be a one-year aberration.  But even so, the company president fears a large dip in the current year’s profits.  He believes that such a dip could cause a significant drop in the market price of Redcliffe’s stock and make the company a takeover target.

To avoid this possibility, the company calls in Stacy Clark, controller, to discuss this period’s year-end adjusting entries.  He urges her to accrue every possible revenue and to defer as many expenses as possible.  He says to Stacy, “We need the revenues this year, and next year can easily absorb expenses deferred from this year.  We can’t let our stock price be hammered down!” Stacy didn’t get around to recording the adjusting entries until January 15, but she dated the entries December 31 as if they were recorded then, Stacy also made every effort to comply with the president’s request.

In 200 words or less, provide the ethical considerations, if any, of (1) the president’s request and (2) Stacy’s dating the adjusting entries December 31?

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