60.1K

Verified Solution

Link Copied!

Joseph is the CEO of Cranbrook Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Joseph had predicted that the company's earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Joseph 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, Joseph 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, Joseph ordered the company's accountant, Jenny, to 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 substantial inventories at the end of the year. Required: (a) Why would reclassifying period costs as product costs increase this period's reported earnings? Do you believe Joseph's actions are ethical? Why or why not? (10 marks) State the specific steps Jenny should follow to resolve this matter. In preparing your answer, consider the IMA's Statement of Ethical Professional Practice. (10 marks) (b)

Answer & Explanation Solved by verified expert

See Answer