The executive officers of Coach Corporation have a performance-based compensation plan that links performance criteria to growth
Question:
The executive officers of Coach Corporation have a performance-based compensation plan that links performance criteria to growth in earnings per share. When annual EPS growth is 12%, the Coach executives earn 100% of a predetermined bonus amount; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation.
In 2014, Joanna Tse, the controller of Coach, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Peter Reiser, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Tse 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 a great deal of subjectivity is involved in the calculation.
Instructions
Discuss the financial reporting issues. Assume this is a public company.
CorporationA Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1118300855
10th Canadian Edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy