Bruce Bender is the chief accountant for XX (Double) Cross Industries a large manufacturing company.
In addition to XX-Cross’s normal business activities, the company has excess warehouse space that it rents out to local businesses. Because the typical
renter is a small business, XX-Cross requires renters to make lease payments for the entire rental period, most often one year, on the day the lease is signed.
As a result the company typically reports a large unearned rent balance on its balance sheet.
After making adjusting entries for the current year, Bruce Bender prepares the adjusted trial balance and notices that the company’s earnings will decline
significantly. He presents the adjusted trial balance to the company CFO, Jake Judge, who is concerned about the earnings decline.
Mr. judge notices the large unearned rent balance and proposes making additional end of the period adjusting entry to recognize the entire unearned rent
balance as revenue in the current period. Mr. Bender protest, reminding Mr. judge that the adjusting entry for unearned rent has already been made.
Mr. Judge assured Mr. Bender that his proposal is acceptable, reminding Bruce Bender that “because we have already received the cash we have the right to
recognize the revenue in the current period.”
Mr. Judge instructs Mr. Bender to make the additional adjusting journal entry. Bruce is hesitant to follow the instructions, but he is sensitive the company’s
emphasis on earnings growth and makes the adjusting entries as instructed.
Is Mr. Judge’s instruction ethical? Why or why not? What does this indicate about the XX-Cross Industries’ corporate culture?
Should Bruce Bender follow Mr. Judge’s instructions? Why or why not?
Who is affected by Bruce’s decision?