Should revenue be recorded early? Carnival Custom Painting’s controller, Kristi Seay, is hoping to get a loan from a local bank. The business’s van engine has just died, and the business has no extra...

Should revenue be recorded early?

Carnival Custom Painting’s controller, Kristi Seay, is hoping to get a loan from a local bank. The business’s van engine has just died, and the business has no extra cash to replace the engine. It needs a short-term loan of $3,000. A teller at the bank has told Kristi that the bank will only approve the loan if the business has a current ratio that is above 1.2. Currently, Carnival’s current ratio is 1.1. The business has just received a contract for painting a new commercial building. Kristi has told the teller that she expects revenue of $15,000 from the contract but won’t receive payment until the job is completed. The business plans on starting the job next week but won’t be finished for another two months, not soon enough to use the cash to replace the engine in the van. The teller has suggested to Kristi that she go ahead and record the revenue and cash receipt of the painting contract even though it hasn’t been completed. This, he tells her, will increase the business’s current assets and thereby increase the current ratio to 1.4, well above the bank minimum. What should Kristi do? What would you do?