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Roy Akins was the accounting manager at Zelco, a tire manufacturer. He played golf with Hugh Stallings, the CEO of the company. Stallings was somewhat of a celebrity in the community, and Akins was eager to get into Stallings’ elite social circle. The CEO stood to earn a substantial bonus if Zelco increased its net income by year-end. Akins boasted to Stallings that he knew some accounting tricks that would increase company income by simply revising some journal entries for rental payments on storage units. At the end of the year, Akins changed the debits from “rent expense” to “prepaid rent” on several entries. Stallings received his bonus, and the deviations were never discovered.
- How did the change in journal entries affect the net income of the company at year end?
- Who gained and who lost as a result of these actions?
- Would you consider this action to be unethical and/or fraud? Please explain your position.