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

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Roy Akins was the accounting manager at Zelco, a tire manufacturer, and he played golf with Hugh Stallings, the CEO who was something of a celebrity in the community.  The CEO stood to earn a substantial bonus if Zelco increased net income by year-end.  Roy was eager to get into Hugh’s elite social circle.  He boasted to Hugh he knew of some accounting tricks to increase the company’s income by simply revising a few journal entries for rental payments on storage units.  At the end of the year, Roy changed the debits form “rent expense” to “prepaid rent” on several entries.  Later Hugh got his bonus, and the deviations were never discovered. 

  1. How did the change in the journal entries affect the net income of the company at year-end?
  2. Who gained and who lost as a result of these actions?
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