53) Ima Hogg wants to borrow money to expand her business. Her plan is to open a new store on each of the major islands in the Caribbean. She knows that her bank will want to see a full set of this...

53) Ima Hogg wants to borrow money to expand her business. Her plan is to open a new store on each of the major islands in the Caribbean. She knows that her bank will want to see a full set of this year’s financial statements before agreeing to lend the company money. Ima tells the company accountant, Tom Trueheart, not to pay December rent or utilities. That way there will be less rent expense and utility expense on this year’s income statement.

1. What effect will failing to pay these bills have on this year’s income statement? How will the balance sheet be affected? Why would Ima Hogg ask Tom Trueheart to do this?

2. Would it be ethical for Tom to do as Ima asks? Why?

54) On June 1, Ren, Inc. paid $12,000 for one year of rent in advance. In Ren’s information system, the $12,000 was recorded as prepaid rent. Ren forgot to make the necessary adjusting entry before preparing its annual financial statements on December 31. Put an X in the appropriate box to show how each of these line items will be reported on Ren’s financial statements. Dollar amounts are not required.

55) Stimpy, Inc. collected $3,600 on December 20, 2011 from a customer for services to be performed next year in 2012. In Stimpy’s information system, the entire cash receipt of $3,600 was recorded as revenue earned. Stimpy forgot to make the necessary adjusting entry before preparing financial statements on December 31, 2011. Put an X in the appropriate box to show how each of these line items will be reported on Stimpy’s December 31, 2011 financial statements. Dollar amounts are not required.