VaporWare II,Inc.(VWIII),had spectacularly good financial results in 1999.However, in 2000, the…

VaporWare II,Inc.(VWIII),had spectacularly good financial results in 1999.However, in 2000, the millenium bug, other defects, and general customer dissatisfaction resulted in returns of $3 million.These products had originally been expensed for $1 million. It cost $5 million to satisfy VWIII’s irate customers.VWIII chose not to report any returns in 2000, while showing the $5 million as sales revenue in 2000. Required a. Show how the $3 million of returns should have been recorded. b. If the defects had been properly anticipated, what impact would this have had on VWIII’s 1999 income statement? c. Show how the 1999 balance sheet would have changed if the returns had been recorded correctly.Why might VWIII’s management be unhappy with these results? d. Discuss how the 2000 financial statements will be affected by VWIII’s treatment of these returns. e. Discuss the ethical problems inherent in this situation, for the company, for its financial managers, and for its auditors.

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