The executive officers of Tunnel Company have a performance-based compensation plan. The performance criteria of this plan are linked to growth in earnings per share (EPS). When annual EPS grow the 12%, the executive officers earn 100% of the shares; if grow is 16%, they earn 125%. If EPS is lower than 8%, the executives receive no additional compensation.In 2019, Kim Stone, the controller of Tunnel, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Garry Forman, a member of the executive group, remarks over lunch that the estimate of bad debt expense might be decreased, which will then increase EPS growth to 16.1%. Stone 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 there is a great deal of subjectivity involved in this calculation.

(a) What Is the ethical dilemma for Stone, if any?

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

(c) How should Stone respond to Formans request?