Reference no: EM131725934

Problem - Old Inventory

Horizon Corporation manufactures personal computers. The company began operations in 2003 and reported profits for the years 2003 through 2010. Due primarily to increased competition and price slashing in the industry, 2011's income statement reported a loss of $20 million. Just before the end of the 2012 fiscal year, a memo from the company's chief financial officer to Jim Fielding, the company controller, included the following comments:

If we don't do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write down. The resulting loss for 2012 will cause a violation of our debt covenants and force the company into bankruptcy. I suggest that you ship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's president, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2012 which will boost our loss to a profit. Then J.B. Sales will simply return the inventory in 2013 after the financial statements have been issued.

Please answer the questions:

[1] Discuss the ethical dilemma faced by Jim Fielding.

[2] Discuss the revenue recognition principle.

[3] Discuss and provide any adjusting journal entry, if required (hint: from the inventory chapter).

Attachment:- Assignment.rar