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Emerson Electric Emerson Electric is engaged in design, manufacture, and sale of a broad range of electrical, electromechanical, and electronic products and systems. The following shows Emerson's net income and net income before extraordinary items for the past 20 years (in millions): PROBLEM 2-14 Earnings Management Strategies Net Income Net Income Net Income before before before Net Extraordinary Net Extraordinary Net Extraordinary Items Year Income Items Year Income Items Year Income Y1 $201.0 $201.0 Y8 $408.9 $408.9 Y15 $ 708.1 $ 708.1 Y2 237.7 237.7 Y9 467.2 467.2 Y16 788.5 904.4 Y3 273.3 273.3 Y10 528.8 528.8 Y17 907.7 929.0 1,018.5 1,121.9 1,228.6 1,018.5 1,121.9 1,228.6 Y4 300.1 300.1 Y11 588.0 588.0 Y18 Y5 302.9 302.9 Y12 613.2 613.2 Y19 Y6 349.2 349.2 Y13 631.9 631.9 Y20 Y7 401.1 401.1 Y14 662.9 662.9 Emerson has achieved consistent earnings growth for more than 160 straight quarters (more than 40 years). CHECK Required: Income smoothing strategy a. What earnings strategy do you think Emerson has applied over the years to maintain its record of earnings growth? b. Describe the extent you believe Emerson's earnings record reflects business activities, excellent management, and/or earnings management. c. Describe how Emerson's earnings strategy is applied in good years and bad. d. Identify years where Emerson likely built hidden reserves and the years it probably drew upon hidden reserves.

Emerson Electric Emerson Electric is engaged in design, manufacture, and sale of a broad range of electrical, electromechanical, and electronic products and systems. The following shows Emerson's net income and net income before extraordinary items for the past 20 years (in millions): PROBLEM 2-14 Earnings Management Strategies Net Income Net Income Net Income before before before Net Extraordinary Net Extraordinary Net Extraordinary Items Year Income Items Year Income Items Year Income Y1 $201.0 $201.0 Y8 $408.9 $408.9 Y15 $ 708.1 $ 708.1 Y2 237.7 237.7 Y9 467.2 467.2 Y16 788.5 904.4 Y3 273.3 273.3 Y10 528.8 528.8 Y17 907.7 929.0 1,018.5 1,121.9 1,228.6 1,018.5 1,121.9 1,228.6 Y4 300.1 300.1 Y11 588.0 588.0 Y18 Y5 302.9 302.9 Y12 613.2 613.2 Y19 Y6 349.2 349.2 Y13 631.9 631.9 Y20 Y7 401.1 401.1 Y14 662.9 662.9 Emerson has achieved consistent earnings growth for more than 160 straight quarters (more than 40 years). CHECK Required: Income smoothing strategy a. What earnings strategy do you think Emerson has applied over the years to maintain its record of earnings growth? b. Describe the extent you believe Emerson's earnings record reflects business activities, excellent management, and/or earnings management. c. Describe how Emerson's earnings strategy is applied in good years and bad. d. Identify years where Emerson likely built hidden reserves and the years it probably drew upon hidden reserves.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter7: Variable Costing For Management analysis
Section: Chapter Questions
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Emerson Electric Emerson Electric is engaged in design, manufacture, and sale of a broad range of electrical, electromechanical, and electronic products and systems. The following shows Emerson's net income and net income before extraordinary items for the past 20 years (in millions): PROBLEM 2–14 Earnings Management Strategies Net Income Net Income Net Income before before before Net Extraordinary Net Extraordinary Items Net Extraordinary Year Income Items Year Income Year Income Items Y1 $201.0 $201.0 Y8 $408.9 $408.9 Y15 $ 708.1 $ 708.1 Y2 237.7 237.7 Y9 467.2 467.2 Y16 788.5 904.4 Y3 273.3 273.3 Y10 528.8 528.8 Y17 907.7 929.0 300.1 300.1 Y11 588.0 588.0 1,018.5 1,121.9 1,228.6 Y4 Y18 1,018.5 613.2 613.2 1,121.9 1,228.6 Y5 302.9 302.9 Y12 Y19 Y6 349.2 349.2 Y13 631.9 631.9 Y20 Y7 401.1 401.1 Y14 662.9 662.9 Emerson has achieved consistent earnings growth for more than 160 straight quarters (more than 40 years). CHECK Required: Income smoothing strategy a. What earnings strategy do you think Emerson has applied over the years to maintain its record of earmings growth? b. Describe the extent you believe Emerson's earnings record reflects business activities, excellent management, and/or earnings management. c. Describe how Emerson's earnings strategy is applied in good years and bad. d. Identify years where Emerson likely built hidden reserves and the years it probably drew upon hidden reserves.
Transcribed Image Text:Emerson Electric Emerson Electric is engaged in design, manufacture, and sale of a broad range of electrical, electromechanical, and electronic products and systems. The following shows Emerson's net income and net income before extraordinary items for the past 20 years (in millions): PROBLEM 2–14 Earnings Management Strategies Net Income Net Income Net Income before before before Net Extraordinary Net Extraordinary Items Net Extraordinary Year Income Items Year Income Year Income Items Y1 $201.0 $201.0 Y8 $408.9 $408.9 Y15 $ 708.1 $ 708.1 Y2 237.7 237.7 Y9 467.2 467.2 Y16 788.5 904.4 Y3 273.3 273.3 Y10 528.8 528.8 Y17 907.7 929.0 300.1 300.1 Y11 588.0 588.0 1,018.5 1,121.9 1,228.6 Y4 Y18 1,018.5 613.2 613.2 1,121.9 1,228.6 Y5 302.9 302.9 Y12 Y19 Y6 349.2 349.2 Y13 631.9 631.9 Y20 Y7 401.1 401.1 Y14 662.9 662.9 Emerson has achieved consistent earnings growth for more than 160 straight quarters (more than 40 years). CHECK Required: Income smoothing strategy a. What earnings strategy do you think Emerson has applied over the years to maintain its record of earmings growth? b. Describe the extent you believe Emerson's earnings record reflects business activities, excellent management, and/or earnings management. c. Describe how Emerson's earnings strategy is applied in good years and bad. d. Identify years where Emerson likely built hidden reserves and the years it probably drew upon hidden reserves.
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