An example illustrating how the equity method can result in manipulation of financial results is the case of Sunbeam Corporation. Sunbeam employed various manipulative tactics, including the use of the equity method, to inflate its reported earnings. Sunbeam utilized "bill and hold" transactions, where it would recognize sales prematurely by shipping goods to distributors without actually selling them. The distributors were part of a joint venture accounted for using the equity method, allowing Sunbeam to recognize revenue and profits from these transactions. However, the goods were often returned or not paid for, resulting in inflated earnings that did not reflect actual economic value (Amiram et al., 2016). In this example, the equity method was exploited to recognize revenue and profits prematurely, distorting the financial results of Sunbeam. Financial statement readers who carefully analyze the company's revenue recognition practices, the relationship with joint ventures, and the subsequent returns and collections can potentially uncover such manipulation

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In the case of Sunbeam Corporation the misuse of the equity method allowed the company to artificial... View the full answer