This semester we discussed several ways in which a company that is under pressure to meet expectations can manipulate its net income. Assume the Kool G Rap $($KGR$)$ Company is expected by analysts and shareholders to have $$2\mathrm{.}20$ in earnings per share. Currently, the company is only going to have $$2\mathrm{.}18$ in earnings per share. The company uses double$-$declining balance depreciation for buildings and equipment. Inventory is accounted for using periodic LIFO, reported at the lower of cost$-$or$-$market, and the company is in an inflationary cost environment $($inventory costs are increasing$).$ The company currently is expected to report LIFO liquidation profit. Currently, inventory item #$101$ is reported at net realizable value $($selling price less cost to sell$).$This semester we discussed several ways in which a company that is under pressure to meet expectations can

manipulate its net income. Assume the Kool G Rap $($KGR$)$ Company is expected by analysts and shareholders to

have $$2\mathrm{.}20$ in earnings per share. Currently, the company is only going to have $$2\mathrm{.}18$ in earnings per share. The

company uses double$-$declining balance depreciation for buildings and equipment. Inventory is accounted for using

periodic LIFO, reported at the lower of cost$-$or$-$market, and the company is in an inflationary cost environment

$($inventory costs are increasing$).$ The company currently is expected to report LIFO liquidation profit. Currently,

inventory item #$101$ is reported at net realizable value $($selling price less cost to sell$).$

Indicate which changes would help the company increase net income this year.

Reporting COGS using FIFO instead of LIFO.

Purchasing inventory at the end of the year to try and avoid

LIFO liquidation profit.

Increasing the costs to sell item #$101.$

Capitalizing extra legal fees as part of the recently

purchased land asset.

Switching a newly purchased building to straight$-$line

deprecation for the current year.

Increasing the salvage value of a building. Even with the

increase, the net book value of the building will not be

reduced to the salvage value this year.

Selling equipment for less than current book value.

Selling a bond that is classified as a trading security on

December $31.$ The bond has incrensed in value this year.

Selling a bond that is classified as available for sale on

December $31.$ The bond has incrensed in value this year.

Increases Income?

Yes No

Yes No

Yes No

Yes No

Yes No

Yes No

Yes No

Yes No

Yes No