Ethics Case 13-5 Outdoors R Us L013-1 Outdoors R Us owns several membership-base

Question

Ethics Case 13-5 Outdoors R Us L013-1 Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit and tour. The campgrounds offer a wider array of on-site facilities than most. New members sign a multiyear contract, pay a down payment, and make monthly installment payments. Because no credit check is made and many memberships originate on a spur-of-the-moment basis, cancellations are not uncommon Business has been brisk during its first three years of operations, and since going public in 2005, the market value of its stock has tripled. The first sign of trouble came in 2018 when new sales dipped sharply. One afternoon, two weeks before the end of the fiscal year, Diane Rice, CEO, and Gene Sun, controller, were having an active discussion in Sun's office Sun: I've thought more about our discussion yesterday. Maybe something can be done about profits. Rice:I hope so. Our bonuses and stock value are riding on this period's performance. Sun: We've been recording deferred revenues when new members sign up. Rather than recording liabilities at the time memberships are sold, I think we can justify reporting sales revenue for all memberships sold Rice: What will be the effect on profits Sun: Ihaven't run the numbers yet, but let's just say very favorable.

Explanation / Answer

d- Here the dilemma is about recognition of revenue and classification into different category. The alternatives may be showing liability what are showing as deferred revenue till now. Other is to make status quo of the present recording of transactions and working to get more profit. It can also tell the shareholder about the present accounts and whayt it will do to create more value in future with out manipulating book of accounts.

e- By showing liability, the tax consequence will be low and more profit will be reflected in books though it is not in true picture.

By making status quo of maintaining transaction profit figure will be low due to less sales and revenue.

By conveying the dip in sales and profit to shareholders will create panic for the shareholders and investment may be eroded.

f- I will not manipulate with accounts just for the shake of showing profit in the books.

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