Case 1: Part 1 (from Chapter 5) First Things Consulting The CFO of First Things Consulting, Inc. (FTC) prepared the following net income statement for the year ended December 31,2019. FTC had stock or d earnings income tax expense at 35% of income from continuing operations before income taxes. The CFO will make the following adjustments before finalizing the financial statements: 1. FTC will need to record some amount of bad debt expense. The offset will be a reduction in accounts receivable. This adjustment is a matter of judgment and reasonable estimates range between $1,000 and $3,000. 2. FTC will need to write down its inventory (i.e., reduce the reported value of inventory). The offset will be to cost of goods sold. This adjustment is a matter of judgment and reasonable estimates range between $2,500 and $3,750. 3. FTC may need to record an impairment of property, plant, and equipment (PPE) (i.e., reduce the reported value of PPE). The offset will be an impairment loss reported on the statement of net income. This adjustment is a matter of judgment and reasonable estimates range between $0 and $5,000. 4. FTC may need to record an impairment of noncurrent investments (i.e., reduce the reported value of noncurrent investments). The offset will be an impairment loss reported on the statement of net income. This adjustment is a matter of judgment and reasonable estimates range between $250 and $750. 5. FTC may need to record a litigation contingency (i.e., it may need to record a liability for an unresolved lawsuit). The offset is to litigation expense. The lawsuit is expected to be settled in 2020. FTC's attorneys believe that they can provide a point estimate of the amount for which FTC will be liable. The estimate will either be $2,000 or $10,000. 6. FTC may need to reduce the reported amount of its deferred tax asset. The amount by which the asset needs to be reduced is highly judgmental and ranges from $0 to $5,000. The offset to this adjustment is income tax expense. (Thus, this adjustment impacts post-tax net income, but no pre-tax net income). 7. FTC currently has unearned revenue on its balance sheet of $5,400. However, up to $5,000 of this amount could possibly be recognized as revenue in 2019 . However, this amount is a matter of judgment. a. If FTC makes the most conservative choices for all these adjustments resulting in the lowest income number, what is the impact on net income and earnings per share? b. If FTC makes the least conservative choices for all these adjustments by making the choices that will result in the highest income number, what is the impact on net income and earnings per share? c. Do you think that the management of FTC will care very much about the choices related to these adjustments? Why or why not? Financial Statement Notes Dn March 4, 2014, the FASB issued an exposure draft on Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements. The purpose of this project is to identify road range of possibilities for the board to consider when it makes disclosure rules related to particular topics. 1. An issue arose in deliberations of this exposure draft related to whether the FASB should require disclosure of alternative measures. For example, an entity would record the historical cost of an asset on the face of the balance sheet but be required to disclose its fair value. What are the pros and cons of requiring alternative disclosures in some circumstances? What did the FASB decide? 2. Another issue in the deliberations related to whether future-oriented information should be included in the disclosures to the financial statements. Why were some respondents opposed to including this information in the notes to the financial statements? What did the FASB decide