Question
If Sharon Jacobs of the previous problem (I have posted the previous problem below.) is also a founder of the company and has retained 8
If Sharon Jacobs of the previous problem (I have posted the previous problem below.) is also a founder of the company and has retained 8 million shares of its stock, how much of a difference will the auditor's decision make in her personal wealth outside of the stock option? (A Moral Hazard for Founders: Concept Connection Example 5-2)
Previous Question:
Read Business Analysis Case 3. Henderson Industries Inc.'s stock is currently selling at $22.40 per share. Sharon Jacobs, the CEO, has options to buy 250,000 shares at $25.50 per share that expire at the end of the year. Sharon feels that if the traditional accounting method is used, implementing the deferred payment sales program will push the stock's price about halfway toward the level it was at two years ago which was about $43. (That method recognizes the entire price and cost of a sold item on the income statement at the time of sale.) If the installment sales technique is used, the price of the stock will probably be unchanged but may even go down a little. How much will Sharon make on her stock option i fshe can pressure Henderson's auditors into alowing the traditional method?
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