a. Assume that senior management expects current earnings to be $21 million and next year's earnings to be $18 million. What incentive does management of Harris Corporation have for managing earnings? b. Assume that senior management expects current earnings to be $17 million and next year's earnings to be $24 million. What incentive does management of Harris Corporation have for managing earnings? C. Assume that senior management expects current earnings to be $9.5 million and next year's earnings to be $12 million. What incentive does management of Harris Corporation have for managing earnings?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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P6-44. Incentives for Earnings Management
Harris Corporation pays senior management an annual bonus from a bonus pool. The size of the
bonus pool is determined as follows.
Reported net income
Less than or equal to $10 million....
Greater than $10 million,
but less than or equal to $20 million..
Greater than $20 million....
.....
Bonus pool
$0
10% of income in excess of $10 million
$1 million
REQUIRED
a. Assume that senior management expects current earnings to be $21 million and next year's
earnings to be $18 million. What incentive does management of Harris Corporation have for
managing earnings?
C.
b. Assume that senior management expects current earnings to be $17 million and next year's
earnings to be $24 million. What incentive does management of Harris Corporation have for
managing earnings?
Assume that senior management expects current earnings to be $9.5 million and next year's
earnings to be $12 million. What incentive does management of Harris Corporation have for
managing earnings?
d. How might the bonus plan be structured to minimize the incentives for earnings management?
Transcribed Image Text:P6-44. Incentives for Earnings Management Harris Corporation pays senior management an annual bonus from a bonus pool. The size of the bonus pool is determined as follows. Reported net income Less than or equal to $10 million.... Greater than $10 million, but less than or equal to $20 million.. Greater than $20 million.... ..... Bonus pool $0 10% of income in excess of $10 million $1 million REQUIRED a. Assume that senior management expects current earnings to be $21 million and next year's earnings to be $18 million. What incentive does management of Harris Corporation have for managing earnings? C. b. Assume that senior management expects current earnings to be $17 million and next year's earnings to be $24 million. What incentive does management of Harris Corporation have for managing earnings? Assume that senior management expects current earnings to be $9.5 million and next year's earnings to be $12 million. What incentive does management of Harris Corporation have for managing earnings? d. How might the bonus plan be structured to minimize the incentives for earnings management?
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