Mr. Ang is a member of the board of directors. He will be given a bonus if he can increase the share price by 20% at the end of the fiscal year. Which of the following would LEAST LIKELY BE be a manifestation of bias by Mr. Ang? a. Management letter to the stockholders stating the qualitative improvements on the business b. Increase in operating cash inflow c. Increase in accrued income and accounts receivables d. Increased media coverage to paint a better picture of the entity
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Mr. Ang is a member of the board of directors. He will be given a bonus if he can increase the share price by 20% at the end of the fiscal year. Which of the following would LEAST LIKELY BE be a manifestation of bias by Mr. Ang?
a. Management letter to the stockholders stating the qualitative improvements on the business
b. Increase in operating
c. Increase in accrued income and
d. Increased media coverage to paint a better picture of the entity
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Solved in 2 steps
- Consider the following thoughts of a manager at the end of the companys third quarter: If I can increase my reported profit by 2 million, the actual earnings per share will exceed analysts expectations, and stock prices will increase. The stock options that I am holding will become more valuable. The extra income will also make me eligible to receive a significant bonus. With a son headed to college, it would be good if I could cash in some of these options to help pay his expenses. However, my vice president of finance indicates that such an increase is unlikely. The projected profit for the fourth quarter will just about meet the expected earnings per share. There may be ways, though, that I can achieve the desired outcome. First, I can instruct all divisional managers that their preventive maintenance budgets are reduced by 25 percent for the fourth quarter. That should reduce maintenance expenses by approximately 1 million. Second, I can increase the estimated life of the existing equipment, producing a reduction of depreciation by another 500,000. Third, I can reduce the salary increases for those being promoted by 50 percent. And that should easily put us over the needed increase of 2 million. Required: Comment on the ethical content of the earnings management being considered by the manager. Is there an ethical dilemma? What is the right choice for the manager to make? Is there any way to redesign the accounting reporting system to discourage the type of behavior the manager is contemplating?Which of the following actions would be likely to reduce potential conflicts of interest between stockholders and managers? a. A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock. b. The company changes the way executive stock options are handled, with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period. c. The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash. d. The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company. e. Congress passes a law that severely restricts hostile takeovers.Ethics and the Manager M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that wherever possible, expenditures should be postponed to the new year—including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs that are…
- K. Gallant is president of Kranbrack Corporation. A company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that wherever possible, expenditures should be postponed to the new year-including cancelling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have…M.K. Gallant is President of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysis at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to ultimately report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that whenever possible, expenditures should be postponed to the new-year-including cancelling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected…KBS enterprise is selling one of its division for $80million cash.At the upcoming quarterly board meeting, KBS board of directors are to decide whether to use the entire funds for a cash dividend or carry out a repurchase of 2million shares valued at $80million.both options will have some possible effects on the company. The company has a long term record of gradually increasing dividend.As the head of treasury, providing an in depth discussion of at least three factors that the board of directors would need to keep in perspective when making their final decision
- M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a nationalexchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted thatthe company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expectedfor the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to ultimately report an increase in earnings as large as predicted unless some drastic action was taken.Accordingly, Gallant has ordered that wherever possible, expenditures should be postponed to the newyear—including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’scontroller to carefully scrutinize all costs that are currently classified as period costs and reclassify as manyas possible as product costs. The company is expected to have…As president of Young's of California, a large clothing chain, you have just received a letter from a major stockholder. The stockholder asks about the company's dividend policy. In fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You have not yet collected all the information about the expected dividend payment, but you do know the following: (1) The company follows a residual dividend policy. (2) The total capital budget for next year is likely to be one of three amounts, depending on the results of capital budgeting studies that are currently under way. The capital expenditure amounts are $2 million, $3 million, and $4million. (3) The forecasted level of potential retained earnings next year is $2 million. (4) The target or optimal capital structure is a debt ratio of 40%. You have decided to respond by sending the stockholder the best information available to you. a. Compute the amount of the…The president of Freeman Industries Inc. made the following statement in the annual report to shareholders: “The founding family and majority shareholders of the company do not believe in using debt to finance future growth. The founding family learned from hard experience during the Great Depression that debt can cause loss of flexibility and eventual loss of corporate control. The company will not place itself at such risk again.As such, all future growth will be financed either by stock sales to the public or by internally generated resources.”Write a brief memo to the company’s president, Boss Freeman, outlining the errors in his logic.
- The management of Blanche Inc. controls 58% of the company’s stock. The firm did not meet any of its quarterly sales projections for the last year. Some of the firm’s institutional investors are worried that the firm’s poor performance is partly because management has not been focused on maximizing shareholder wealth. Which of the following measures would the institutional investors most likely want to see implemented? They would want to make sure the company has a restricted voting rights provision. They would want to make sure the company’s charter contains a shareholder rights provision. They would want the company to ban targeted share repurchases.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…Consider the following thoughts of a manager at the end of the company’s third quarter: If I can increase my reported profit by $2 million, the actual earning per share will exceed analysts’ expectations, and stock prices will increase. The stock options that I am holding will become more valuable. The extra income will also make me eligible to receive a significant bonus. With a son headed to college, it would be good if I could cash in some of these options to help pay his expenses. However, my Vice President of finance indicates that such an increase is unlikely. The projected profit for the fourth quarter will just about meet the expected earnings per share. There may be ways, though, that I can achieve the desired outcome. First, I can instruct all divisional managers that their preventive maintenance budgets are reduced by 25 percent for the fourth quarter. That should reduce maintenance expenses by approximately $1 million. Second, I can increase the estimated life of the…