Happy Trails, Inc., is a popular family resort just outside Yellowstone National Park. S ummer is resort’s busy season, but guests typically pay a deposit at least six months in advance to guara their

Happy Trails, Inc., is a popular family resort just outside Yellowstone National Park. S ummer isresort’s busy season, but guests typically pay a deposit at least six months in advance to guaratheir reservations.The resort is currently seeking new investment capital in order to expand operations. The mprofitable Happy Trails appears to be, the more interest it will generate from potential invesEd Grimm, an accountant employed by the resort, has been asked by his boss to include $2 milof unearned guest deposits in the computation of income for the current year. Ed explained toboss that because these deposits had not yet been earned they should be reported in the balasheet as liabilities, not in the income statement as revenue. Ed argued that reporting guest depoas revenue would inflate the current year’s income and may mislead investors.Ed’s boss then demanded that he include $2 million of unearned guest deposits in the comption of income or be fired. He then told Ed in an assuring tone, “Ed, you will never be held respsible for misleading potential investors because you are just following my orders.”