(Ethical Issues-Compensation Plan) The executive officers of Coach Corporation have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Coach executives earn 100% of the shares; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation. In 2006, Joanna Becker, the controller of Coach, reviews year-end estimates of bad debt expense and war- ranty expense. She calculates the EPS growth at 15%. Peter Reiser, a member of the executive group, re- marks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Becker is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation. Instructions Answer the following questions.

(a) What, if any, is the ethical dilemma for Becker?

(b) Should Becker's knowledge of the compensation plan be a factor that influences her estimate?

(c) How should Becker respond to Reiser's request?