Ryan company has a goal that it’s earnings per share should increase by at least 3% each year; this goal has been attained every year over the past decade. As a result the market price per share of Ryan’s common stock also has increase each year. Last year (2018) Ryan’s EPS was $3. This year however is a different story. Because of decreasing sales preliminary computations at the end of 2019 show that EPS will be only $2.99 per share. You are the accountant for Ryan. Ryan’s controller Jim Nastic has come to you with some suggestions. He says, "I’ve noticed that the decrease in revenues has been primarily related to credit sales. Since we have fewer credit sales I believe we are justified in reducing bad debts expense from 4% to 2% of net sales. I also think that because of the decrease sales we won’t use our factory equipment as much so we can extend it’s estimated remaining life from 10 to 15 years for computing our straight line depreciation expense. Based on my calculations if we make these changes Ryan’s 2019 EPS will be $3.06. This will sure make our shareholders happy not to mention our CEO. you may even get a promotion. What do you think?" Required : From financial reporting and ethical perspectives prepare a response to Jim regarding his suggestion.
Ryan company has a goal that it’s earnings per share should increase by at least 3% each year; this goal has been attained every year over the past decade. As a result the market price per share of Ryan’s common stock also has increase each year. Last year (2018) Ryan’s EPS was $3. This year however is a different story. Because of decreasing sales preliminary computations at the end of 2019 show that EPS will be only $2.99 per share.
You are the accountant for Ryan. Ryan’s controller Jim Nastic has come to you with some suggestions. He says, "I’ve noticed that the decrease in revenues has been primarily related to credit sales. Since we have fewer credit sales I believe we are justified in reducing
Required : From financial reporting and ethical perspectives prepare a response to Jim regarding his suggestion.
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