The new CEO of the company takes over on December 10, 2010. He is promised a significant bonus for every percent he can raise net income in 2011 over 2010 results. Which of the following adjustments would aid him in making 2011 results look the most impressive?

Question

Quizplus · Accepted Answer

Deferring expenses to the next year and recognizing non-existent revenues would make the net income for 2011 appear higher, which would increase the CEO's bonus. However, this is unethical and potentially fraudulent. Prepaying expenses could also help increase net income, but it would not be as significant as deferring expenses to the next year. Allocating more of the cost of machinery to depreciation would have no effect on net income. Recording revenue as unearned revenue would decrease net income, which is the opposite of what the CEO wants.

The New CEO of the Company Takes Over on December