a. What, if any, is the ethical dilemma for Devers? b. Should Dever's knowledge of the compensation plan be a factor that influences her estimate? c. How should Devers respond to Adkins's request?
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The executive officers of Rouse Corporation have a performance-based compensation plan. the performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the shares; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives received no additional compensation.
In 2020, Joan Devers, the controller of Rouse, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Kurt Adkins, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Devers is not sure she should do this because she believes that the current estimate of
Instructions: Answer the following questions.
a. What, if any, is the ethical dilemma for Devers?
b. Should Dever's knowledge of the compensation plan be a factor that influences her estimate?
c. How should Devers respond to Adkins's request?
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- The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the shares; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation. In 2020, Joan Devers, the controller of Rouse, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Kurt Adkins, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Devers is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation. Instructions Answer the following questions. a. What, if any, is the ethical dilemma for Devers? b. Should…The executive officers of Welsh Inc. have a performance based compensation plan.The performance criterion of this plan is linked to growth in earnings per share. Whenannual EPS growth is 10%, the executives of Welsh will earn 100% of the shares; ifgrowth is 15%, they earn 125%. If EPS growth, however, is lower than 8%, theexecutives receive no additional compensation.In 2020, Shelly Prince, the financial controller of Welsh, reviews year end estimatesof bad debt expense and warranty expense. She calculates EPS growth of 10%. Amember of the executive mentioned to her that the estimate of bad debt expensemight be decreased, increasing EPS growth to 15%. Shelly is not sure she shouldinclude this because she believes that the current bad debt expense is sound. She doesrecognize though, that a great deal of subjectivity was involved in its computation.Instructionsi. What, if any, is the ethical dilemma facing Shelly Prince? ii. Should Shelly’s knowledge of the compensation plan influence…(Ethical Issues—Compensation Plan) The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the shares; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation. In 2014, Joan Devers, the controller of Rouse, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Kurt Adkins, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Devers is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation.InstructionsAnswer the following questions.(a) What, if any, is the…
- On Jan. 1, 2020, Hufflepuff Industries, Inc. issues stock options for 100,000 shares to a regional manager. The options have an estimated fair value of $6 each. The provide additional incentive for the manager's achievement, the options are not exercisable unless the region revenue increase by 8% in three years. Because the manager when to Ravenclaw College, Hufflepuff initially estimates that the incompetent manager will not achieve the goal. How much compensation will be recorded each year in 2020, 2021, and 2022, the vesting period?Villa Company has experienced tough competition, leading it to seek concessions from its employees in the company's pension plan. In exchange for promises to avoid layoffs and wage cuts, the employees agreed to receive lower pension benefits in the future. As a result, Villa amended its pension plan on January 1, 2020, and recorded negative past service cost of $125,000. Current service cost for 2020 is $26,000. Interest expense is $9,000, and interest revenue is $2,500. Actual return on assets in 2020 is $1,500. Compute Villa's pension expense in 2020.On January 1, 2024, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% in three years. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 5% in three years. Required: What is the revised estimate of the total compensation? What action will be taken to account for the options in 2025? What journal entry will be needed to account for the options in 2025?
- On January 1, 2021, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% in three years. Farmer initially estimates that it is probable the goal will be achieved. How much compensation will be recorded in 2021, 2022, 2023?On January 1, 2021, Farmer Fabrication issued stock options for 280,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Farmer Fabrication’s stock price increases by 2% in three years. Farmer initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in 2021, 2022, and 2023?Witter House is a calendar-year firm with 300 million common shares outstanding throughout 2018 and 2019.As part of its executive compensation plan, at January 1, 2017, the company had issued 30 million executivestock options permitting executives to buy 30 million shares of stock for $10 within the next eight years, but notprior to January 1, 2020. The fair value of the options was estimated on the grant date to be $3 per option.In 2018, Witter House began granting employees stock awards rather than stock options as part of its equitycompensation plans and granted 15 million restricted common shares to senior executives at January 1, 2018.The shares vest four years later. The fair value of the stock was $12 per share on the grant date. The averageprice of the common shares was $12 and $15 during 2018 and 2019, respectively.The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company’snet income was $150 million and $160 million in 2018…
- Witter House is a calendar-year firm with 400 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 45 million executive stock options permitting executives to buy 45 million shares of stock for $14 within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $3 per option. In 2018, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 25 million restricted common shares to senior executives at January 1, 2018. The shares vest four years later. The fair value of the stock was $20 per share on the grant date. The average price of the common shares was $20 and $30 during 2018 and 2019, respectively. The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $250 million and $260 million…Amber, a publicly held corporation, currently pays its president an annual salary of $900,000. As a means of increasing company profitability, the board of directors increased the president’s compensation effective January 1, 2017, with a performance-based compensation program. This program increased the president’s compensation by $300,000 in 2017 and $350,000 in 2018. Her compensation under this performance-based compensation program is expected to remain at $350,000 in 2019. Prepare a letter to Amber’s board of directors that identifies the amount of compensation that will be deductible by Amber in 2019 and explains whether any changes should be made to the president’s compensation plan in 2019. Address the letter to the board chairperson, Angela Riddle, whose address is 100 James Tower, Cleveland, OH 44106.Witter House is a calendar-year firm with 300 million common shares outstanding throughout 2016 and 2017. As part of its executive compensation plan, at January 1, 2015, the company had issued 30 million executive stock options permitting executives to buy 30 million shares of stock for $10 within the next eight years, but not prior to January 1, 2018. The fair value of the options was estimated on the grant date to be $3 per option. In 2016, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 15 million restricted common shares to senior executives at January 1, 2016. The shares vest four years later. The fair value of the stock was $12 per share on the grant date. The average price of the common shares was $12 and $15 during 2016 and 2017, respectively. The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company’s net income was $150 million and $160 million…