Ginsberg Company is a recently formed, publicly traded company. At the end of its most recent fiscal year, the company reported the following information.

a. Sales revenues were $13,680,000, and 360,000 units were sold. Credit sales were $10,000,000. Uncollectible accounts associated with credit sales are estimated to be between 3% and 4%.

b. At the beginning of the year, 140,000 units of inventory were on hand at a unit cost of $10 per unit; during the year, 250,000 units were purchased at $10.50, and, later, 150,000 units were purchased at $11.50 per unit.

c. Plant assets included equipment with a book value of $3,375,000 and buildings with a book value of $8,260,000. The equipment has an estimated remaining useful life of between four and seven years. The buildings have an estimated remaining useful life of between 25 and 35 years.

d. Intangible assets (excluding goodwill) cost $1,200,000 and have a remaining useful life of no less than 10 years.

e. The company has the option of adopting a new accounting standard for the fiscal year. If the standard is adopted, the cumulative effect of the accounting change, before the tax effect, will be a loss of $1,100,000.

f. The company’s tax rate is 34%. Other operating expenses were $6,245,000. Interest expense was $460,000. There were 500,000 shares of common stock outstanding throughout the year.

Management has not yet made decisions about how to treat items a through e. A choice is necessary in each instance. The chief financial officer has asked you to determine the range of net income that might be reported depending on the choices that are made.

Required

Prepare two different pro forma (projected) income statements for the year.

A. With the first income statement, show the minimum net income the company could report under GAAP.

B. With the second income statement, show the maximum net income that could be reported under GAAP.

C. What does this suggest to you about comparing the reported net income of one firm versus the others?