decision point: how should you report earnings? your last challenge of the week may be your biggest yet…

decision point: how should you report earnings? your last challenge of the week may be your biggest yet. maria, the vice president of accounting, and chris, the director of sales, meet with you in your office. maria begins the meeting. our quarterly earnings report is due by the end of the week, and the numbers dont look good. were going to miss our earnings estimates, and this is going to have a huge impact on the value of our stock. chris pipes up. ive told maria that theres a simple solution. we just landed a huge contract with a new customer thats worth over $2 million. this is a sure thing, but the customer is out of the country and cant sign the contract until late next week. why dont we just record those sales in this quarter? that way, well make our earnings estimate. maria is upset. thats fraud. chris appears unconcerned. its not fraud. weve got the contract. whats the difference if we record the sales in this quarter or next quarter? as ceo, what should you do? select an option from the choices below and click submit. dont record the sale because its not a sure thing until the contract is signed. by recording future sales on the \promise\ of a contract, you are misleading investors as to the financial state of the company. tell the vp of accounting to record the sales in this quarter so the company makes its earnings estimate. if the contract is a sure thing, its just a bookkeeping transaction.

decision point: how should you report earnings? your last challenge of the week may be your biggest yet. maria, the vice president of accounting, and chris, the director of sales, meet with you in your office. maria begins the meeting. our quarterly earnings report is due by the end of the week, and the numbers dont look good. were going to miss our earnings estimates, and this is going to have a huge impact on the value of our stock. chris pipes up. ive told maria that theres a simple solution. we just landed a huge contract with a new customer thats worth over $2 million. this is a sure thing, but the customer is out of the country and cant sign the contract until late next week. why dont we just record those sales in this quarter? that way, well make our earnings estimate. maria is upset. thats fraud. chris appears unconcerned. its not fraud. weve got the contract. whats the difference if we record the sales in this quarter or next quarter? as ceo, what should you do? select an option from the choices below and click submit. dont record the sale because its not a sure thing until the contract is signed. by recording future sales on the \promise\ of a contract, you are misleading investors as to the financial state of the company. tell the vp of accounting to record the sales in this quarter so the company makes its earnings estimate. if the contract is a sure thing, its just a bookkeeping transaction.

Answer

Answer:

Don't record the sale because it's not a sure thing until the contract is signed. By recording future sales on the "promise" of a contract, you are misleading investors as to the financial state of the company.

Brief Explanations:

Recording sales prematurely is unethical and violates accounting principles. A sale should only be recognized when the contract is signed and the revenue - recognition criteria are met. Premature recording misleads investors about the company's true financial position.