You are to assume the role of the controller at Office Supplies Company. The vice president of the company wants you to clarify transactions.
The sales and marketing manager at the company earns a monthly bonus based on net income. The manager is not happy with the bonus received for October. The manager has complained to the vice president about the bonus. The manager believes that you are not correctly calculating net income. The vice president has asked to meet with you for clarification of specific transactions of interest. The transactions are listed below.
- On 10/31 the manager made a sale of 500 ink cartridges on credit for $50 each at a cost of $30 each. The ink cartridges were shipped to the customer on November 1.
- Received an invoice for Web hosting fees of $500 for the month of October due November 15.
You are to:
- Explain how each transaction is journalized
- Explain how each transaction affects net income on the October Income Statement
- Discuss ethical considerations related to basing bonuses on net income
