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:

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.

Assignment

Write what course of action you would take

against each of these points in order to prepare for the next day's meeting. In each case,

what additional information might you seek? Depending on what you find out, what would

US GAAP require you to report or disclose in your quarterly 10Q? How would the above

events be reflected in your quarterly income statement? What EPS concerns would you

expect to hear from the CFO and President? What alternatives would be available to you to

appropriately and ethically adjust earnings