Floyd Christianson is the chief executive officer of Murango Pharmaceuticals. The company has been struggling in recent years to break even and its stock price has been on the decline. The company’s Jacksonville plant manufactures a prescription drug that has lost significant market share to alternative drugs marketed by its competitors. On February 1, management decided that it would close the Jacksonville plant at the end of June.

On February 3, Susan Lohmar, Murango’s chief financial officer, asked Christianson to review the Form 8-K she was about to file with the SEC (see this chapter’s Ethics, Fraud & Corporate Governance feature on page 896). Christianson read the document and immediately instructed Lohmar not to file it, saying:

There’s no need to cause alarm in the marketplace. Our stock price is depressed enough the way it is. What people don’t know won’t hurt ’em. Besides, the charge to income you’re proposing will cause us to operate in the red, and that won’t go over well with shareholders.

Instructions

a. What is a Form 8-K?

b. What charge to income was disclosed in the Form 8-K prepared by Susan Lohmar?

c. Why would filing a Form 8-K cause the company to appear unprofitable?

d. Do you agree with Floyd Christianson’s argument against filing a Form 8-K? Defend your answer.