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Roy was the accounting manager at Zico Tire a tire manufacturer and he played golf with Hugo, the CEO ,who was something of a celebrity in the community The CEO stood to earn a substantial bonus

Roy was the accounting manager at Zico Tire, a tire manufacturer , and he played golf with Hugo, the CEO ,who was something of a celebrity in the community. The CEO stood to earn a substantial bonus if Zico increased net income by year-end. Roy was eager to get into Hugo’s elite social circle; he boasted to Hugo 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 , Roy changed the debits from “ rent expenses” to “ prepaid rent ” on several entries. Later, Hugo got his bonus, and the deviations were never discovered.

Required :

1 Explain how the change in the journal entries affect the net income of the company at year end .

2 Suggest who gained and who lost as a result of these actions.

May 22 2020 View more View Less

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