The net income of Cruz', a department store, decreased sharply during 20X5. Mark Cruz, owner of the store anticipates the need for a bank loan in 20X6. Late in 20X5 he instructed the accountant to record a P26,000 of furniture to the Cruz family, even though the goods will not be shipped from the manufacturer until January 20X6. Cruz also told the accountant not to make the following December 31, 20X5, adjusting entries: Salaries owed to employees Prepaid insurance that has expired P18,000 5,300 Required: OASIR

1. Compute the overall effect of these transactions on the store's reported income for 20X5.

2. Why did Cruz take this action? Is this action ethical? Give your reason, identifying the parties helped and the parties harmed by Cruz' action.

3. As a personal friend, what advice would you give the accountant?

Public Answer

IOIEVB The First Answerer