Linda Butler is the new division controller of thesnack-foods division of Daniel Foods. Daniel Foods has reported a minimum 15% growth in annual earningsfor each of the past 5 years. The snack-foods division has reported annual earnings growth of more than20% each year in this same period. During the current year, the economy went into a recession. The corporatecontroller estimates a 10% annual earnings growth rate for Daniel Foods this year. One month beforethe December 31 fiscal year-end of the current year, Butler estimates the snack-foods division will report anannual earnings growth of only 8%. Rex Ray, the snack-foods division president, is not happy, but he notesthat the “end-of-year actions” still need to be taken.Butler makes some inquiries and is able to compile the following list of end-of-year actions that weremore or less accepted by the previous division controller:a. Deferring December’s routine monthly maintenance on packaging equipment by an independent contractoruntil January of next year.b. Extending the close of the current fiscal year beyond December 31 so that some sales of next yearare included in the current year.c. Altering dates of shipping documents of next January’s sales to record them as sales in December ofthe current year.d. Giving salespeople a double bonus to exceed December sales targets.e. Deferring the current period’s advertising by reducing the number of television spots run in Decemberand running more than planned in January of next year.f. Deferring the current period’s reported advertising costs by having Daniel Foods’ outside advertisingagency delay billing December advertisements until January of next year or by having the agencyalter invoices to conceal the December date.g. Persuading carriers to accept merchandise for shipment in December of the current year even thoughthey normally would not have done so. What should Butler do if Ray suggests that these end-of-year actions are taken in every division ofDaniel Foods and that she will greatly harm the snack-foods division if she does not cooperate andpaint the rosiest picture possible of the division’s results?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Linda Butler is the new division controller of the
snack-foods division of Daniel Foods. Daniel Foods has reported a minimum 15% growth in annual earnings
for each of the past 5 years. The snack-foods division has reported annual earnings growth of more than
20% each year in this same period. During the current year, the economy went into a recession. The corporate
controller estimates a 10% annual earnings growth rate for Daniel Foods this year. One month before
the December 31 fiscal year-end of the current year, Butler estimates the snack-foods division will report an
annual earnings growth of only 8%. Rex Ray, the snack-foods division president, is not happy, but he notes
that the “end-of-year actions” still need to be taken.
Butler makes some inquiries and is able to compile the following list of end-of-year actions that were
more or less accepted by the previous division controller:
a. Deferring December’s routine monthly maintenance on packaging equipment by an independent contractor
until January of next year.
b. Extending the close of the current fiscal year beyond December 31 so that some sales of next year
are included in the current year.
c. Altering dates of shipping documents of next January’s sales to record them as sales in December of
the current year.
d. Giving salespeople a double bonus to exceed December sales targets.
e. Deferring the current period’s advertising by reducing the number of television spots run in December
and running more than planned in January of next year.
f. Deferring the current period’s reported advertising costs by having Daniel Foods’ outside advertising
agency delay billing December advertisements until January of next year or by having the agency
alter invoices to conceal the December date.
g. Persuading carriers to accept merchandise for shipment in December of the current year even though
they normally would not have done so.

What should Butler do if Ray suggests that these end-of-year actions are taken in every division of
Daniel Foods and that she will greatly harm the snack-foods division if she does not cooperate and
paint the rosiest picture possible of the division’s results?

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