You are the Controller of ABC Manufacturing Corp, a publicly traded furniture manufacturing company, based on Long Island. Business has been going well for ABC. Over the last four quarters the EPS have been 50, 54, 59, and 60 cents per share. It is nearing the end of the quarter and most of the analysts that are following your stock are projecting an EPS for the current quarter of 69 cents per share, which looks right in line with what you are projecting for the quarter.

However, just as you are going over the quarter to date figures, four new items are brought to your attention:

1) A wholesale account that has been a long term and important customer (up to 10% of sales) to ABC has just declared Chapter 11 bankruptcy.

2) A piece of land that the company has held as an investment for years has just been sold to a real estate development company and a profit of 5 cents net of tax has been realized.

3) The study you requested on the shifting to LIFO inventory costing has just been completed and will result in a life to date increase in net income (after tax) of 7 cents.

4) Last week there was significant water damage to some finished desks at a company owned warehouse. Unfortunately, due to the level of insurance deductibles, the company's insurance policy will only pick up a portion of the 6 cent after tax loss. Losses similar to this one have happened on three separate occasions over the last 6 years.

Shortly after learning about these four issues, you find out that the next morning you are scheduled to meet with the CFO and President of ABC to review the anticipated results for the quarter.

Explain

1. explaining what course of action you would take against each of these points in order to prepare for the next day's meeting.
2. In each case, what additional information might you seek?
3. Depending on what you find out, what would US GAAP require you to report or disclose in your quarterly 10Q?
4. How would the above events be reflected in your quarterly income statement?
5. What EPS concerns would you expect to hear from the CFO and President?
6. What alternatives would be available to you to appropriately and ethically adjust earnings?