Why is Simon taking this action?

Is her action ethical? Give a reason, identifying the parties helped and the parties harmed by Simon's action.

The net income of Simon and Hobbs, a department store, decreased sharply during 2000. Carol Simon, owner of the store, anticipates the need for a bank loan in 2001. Late in 2000, Simon instructs the store's accountant to record a $10,000 sale of furniture to the Simon family, even though the goods will not be shipped from the manufacturer until January 2001. Simon also tells the accountant not to make the following December 31, 2000 adjusting entries:

Salaries owed to employees: $900
Prepaid insurance that has expired: $400

To understand why Simon is taking this action, we can analyze the given information. Simon's department store experienced a sharp decrease in net income during 2000, leading her to anticipate the need for a bank loan in 2001. To improve the financial position of the store, Simon instructs the accountant to record a $10,000 sale of furniture to the Simon family, even though the goods will not be shipped until January 2001. Additionally, Simon tells the accountant not to make adjusting entries for salaries owed to employees ($900) and prepaid insurance that has expired ($400).

Considering this situation, it appears that Simon is taking these actions to manipulate the financial statements of the store. By recording a sale that hasn't occurred yet, she attempts to inflate the revenue for the year 2000, making the business appear more profitable than it actually is. This might benefit her in obtaining a bank loan in 2001, as the improved financial picture could increase the likelihood of loan approval or obtaining a better interest rate.

Now let's evaluate the ethicality of Simon's action by identifying the parties helped and the parties harmed:

Parties helped:
- Simon herself: By manipulating the financial statements, she improves the store's financial position, potentially helping her secure a bank loan on favorable terms.
- The Simon family: They receive credit for a purchase that hasn't actually taken place, allowing them to defer payment or enjoy some other form of financial benefit.

Parties harmed:
- The bank: If the bank approves the loan based on the manipulated financial statements, they may be deceived into providing funds to the store based on inaccurate information.
- Other stakeholders: If the store's financial position is misrepresented, it can mislead investors, creditors, or potential buyers who rely on accurate financial information for their decisions.

From an ethical standpoint, Simon's action can be considered unethical. It involves deliberate misrepresentation of financial information, potentially deceiving stakeholders and gaining an unfair advantage in obtaining a bank loan.