P6-44. Incentives for Earnings ManagementHarris Corporation pays senior management an annual bonus from a bonus pool. The size of thebonus pool is determined as follows.Reported net incomeLess than or equal to $10 million....Greater than $10 million,but less than or equal to $20 million..Greater than $20 million.........Bonus pool$010% of income in excess of $10 million$1 millionREQUIREDa. Assume that senior management expects current earnings to be $21 million and next year'searnings to be $18 million. What incentive does management of Harris Corporation have formanaging earnings?C.b. Assume that senior management expects current earnings to be $17 million and next year'searnings to be $24 million. What incentive does management of Harris Corporation have formanaging earnings?Assume that senior management expects current earnings to be $9.5 million and next year'searnings to be $12 million. What incentive does management of Harris Corporation have formanaging earnings?d. How might the bonus plan be structured to minimize the incentives for earnings management?

Only the first three sub-parts has been solved due to our protocol and authorizing limit.There is an…

Answered: a. Assume that senior management…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Consider a company with sales of $18,000.0 million, cost of goods sold of 42% of sales, other expenses including salaries (we usually call this SG&A for selling, general and administrative) of $1,750.0 million, depreciation of $2,250.0 million, and interest expense of $2,300 million. Tax rate=21%. Generate an income statement and show net income. What is the company’s operating cash flow? If there are 775.2 million shares outstanding, what is the EPS? If the company has a payout ratio of 20%, what is the dividends per share?
17 The Manning Company has financial statements as shown next, which are representative of the company's historical average. The firm is expecting a 35 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales. Sales Expenses Earnings before interest and taxes Interest Earnings before taxes Taxes Earnings after taxes Dividends. Income Statement: Cash Accounts receivable. Inventory Fixed assets Assets Current assets Total assets The firm $230,000 168,500 $ 61,500 9,500 $ 52,000 17,500 $ 34,500 $ 13,800 Balance Sheet Liabilities and Stockholders' Equity $6,500 42,000 Accrued wages 55,000 Accrued taxes $ 103,500 90,000 Accounts payable Current liabilities Notes payable Long-term debt Common stock Retained…
Read the scenario below and answer the questions that follow. A company is under pressure from influential shareholders to change its dividend policy. The company has always followed the residual dividend policy, but the influential shareholders feel that the company needs to change to a stable pay-out ratio policy. The company just reported earnings of R232m for the year ended 31 March 2024. The company is considering the following investment opportunities for the upcoming financial year: Investment opportunity A BUD C E Cost R72m R62m R110m R96m R48m Internal rate of return 14.28% 13.03% 15.67% 16.01% 13.79% The company's cost of capital is 13.5% and its target capital structure is represented by a debt-to-assets ratio of 40%. The company has 28m ordinary shares outstanding.
A financial analyst is attempting to assess the future dividend policy of Environmental Systems by examining its life cycle. She anticipates no payout of earnings in the form of cash dividends during the development stage (1). During the growth stage (II), she anticipates 14 percent of earnings will be distributed as dividends. As the firm progresses to the expansion stage (III), the payout ratio will go up to 40 percent and will eventually reach 53 percent during the maturity stage (IV). a. Assuming earnings per share will be as follows during each of the four stages, indicate the cash dividend per share (if any) during each stage. Note: Leave no cells blank - be certain to enter "O" wherever required. Do not round intermediate calculations and round your answers to 2 decimal places. Stage I Stage II Stage III $ 0.25 1.65 2.40 Stage IV 3.90 Dividends Stage I Stage II Stage III Stage IV b. Assume in Stage IV that an investor owns 325 shares and is in a 15 percent tax bracket. What will…
Subject :- Accounting
Can a firm have negative residual income (i.e., abnormal earnings)? What does this mean? Suppose you are valuing a growing firm and you forecast that it will have negative abnormal earnings for the next five years. Can you use the abnormal earnings valuation approach when abnormal earnings are negative?
If you owned a company, would you prefer the market value of its assets to rise $10million or the market value of its liabilities to fall $10million?
You have completed a first pass of a pro-forma balance sheet for Farmer Company. This reveals external financing need of $12 million. The pro-forma income statement shows a Net Income of $100 million and traditionally the firm has paid 40% of its earnings in the form of dividends (which is currently reflected in your pro-forma financials). What payout ratio would eliminate the external financing need of the firm?
Assume that Clampett, Inc. has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. What is Clampett, Inc.'s excess net passive income? $25,000. $75,000. $100,000. $0. None of the choices are correct.
The most recent financial statements for Crosby, Incorporated, follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant. CROSBY, INCORPORATED 2020 Income Statement Sales $ 756,000 Costs 612,000 Other expenses 25,500 Earnings before interest and taxes $ 118,500 Interest paid 11,200 Taxable income $ 107,300 Taxes (23%) 24,679 Net income $ 82,621 Dividends $ 41,340 Addition to retained earnings 41,281 CROSBY, INCORPORATED Balance Sheet as of December 31, 2020 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 24,540 Accounts payable $ 58,600 Accounts receivable 33,890 Notes payable 15,500…
Let us suppose, a company has 1 million outstanding shares of stock, each valued at 25$. Let us also suppose that the replacement cost of its physical capital stock is 18 million $. a. Should this firm invest in more physical capital?b. Would your answer in part (a) change, if the replacement cost of its physical capital stock changes to 28 million $?
26. All of the following represent cash outflows to the firm excepta.Taxes.b.Interest payments.c.Dividends.d.Purchase of plant and equipment.e.Depreciation 27. Other things held constant, if a firm holds cash balances in excess of their optimal level in a noninterest-bearing account, this will tend to lower the firm'sa.Operating profit margin.b.Total asset turnover.c.Return on equity.d.All of the above.e.Answers b and c above. 28. Other things held constant, which of the following will not affect the current ratio, assuming aninitial current ratio greater than 1.0?a.Fixed assets are sold for cash.b.Long-term debt is issued to pay off current liabilities.c.Accounts receivable are collected.d.Cash is used to pay off accounts payable.e.A bank loan is obtained, and the proceeds are credited to the firm's checking account.

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS