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 determine why Simon is taking this action, we can analyze the given information.

Simon, the owner of the department store, anticipates the need for a bank loan in 2001. This suggests that Simon is trying to create a more favorable financial position for the store in order to secure the loan.

By recording a $10,000 sale of furniture to the Simon family in 2000, even though the goods will not be shipped until January 2001, Simon is inflating the store's revenue for the year. This action increases the net income for 2000, making it appear that the store is performing better financially than it actually is. This can make the bank loan application more likely to be approved.

However, Simon's action is not ethical. Ethical standards require financial information to be presented accurately and fairly. By recording a sale that has not yet taken place, Simon is misrepresenting the store's financial situation, which can mislead stakeholders, including potential lenders.

Identifying the parties helped and harmed by Simon's action:

1. Parties Helped:
- Simon: By inflating the store's revenue, Simon may increase the chances of securing a bank loan.

2. Parties Harmed:
- Potential Lenders: They may be misled by the inflated revenue figures, potentially leading to an incorrect assessment of the store's financial health and risk.
- Other stakeholders: If the store's financial position is misrepresented, shareholders, employees, and suppliers may make decisions based on inaccurate information. This can have negative consequences for their interests.

In summary, Simon is taking this action to improve the store's financial position and increase the chances of obtaining a bank loan. However, the action is unethical as it involves misrepresentation of the store's financial information. The parties helped by this action are Simon (in the short term), while potential lenders and other stakeholders are harmed.