Mr. Zai was the accounting manager at Scobi, a tire manufacturer, and he played

Question

Mr. Zai was the accounting manager at Scobi, a tire manufacturer, and he played golf with Mr. Naj, the CEO, who was something of a celebrity in the community. The CEO stood to earn a substantial bonus if Scobi increased net income by year-end. Mr. Zai was eager to get into Mr. Naj’s elite social circle; he boasted to Mr. Naj that he knew some accounting tricks that could increase company income by simply revising a few journal entries for rental payments on storage units. At the end of the year, Mr. Zai changed the debits from “rent expense” to “prepaid rent” on several entries. Later, Mr. Naj got his bonus, and the deviations were never discovered.

Required:

How did the change in the journal entries affect the net income of the company at year-end?       

Who gained and who lost as a result of these actions?   

Explanation / Answer

The change in journal entries had increased the net income because when rent expense is changed to prepaid rent, the expense is decreased and a fake asset is increased by the name prepaid rent.

Here,CEO Mr.Naj had gained and Scobi the tire manufacturer lost because of these actions.

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.