The February 13, 2010, issue of the Wall Street Journal includes an article by Scott Thurm entitled “For Some Firms, a Case of ‘Quadrophobia’.”
Instructions
Read the article and answer the following.
(a) What method did the study’s authors use to determine that companies were “managing” their earnings per share calculation?
(b) For the average company in the study, how much would the company have to boost earnings in order to increase earnings per share by 1/10 of a cent?
(c) What examples did the authors cite of accounting adjustments that companies can make to boost net income enough that they can round up to the next highest cent? Why aren’t these methods of adjustment considered illegal?
(d) What is an earnings restatement? What relationship did the authors identify about companies that restate earnings?
(e) What incentive do companies have to round up their earnings per share to the next highest cent?