Question: The comparative balance sheet of JSA Ltd at June 30

The comparative balance sheet of JSA Ltd. at June 30, 2013, is as follows:

a. Calculate the various accruals on an item- by- item basis. For each accrual indicate the extent to which that accrual may contain a discretionary component and briefly explain why.
b. Briefly describe two other ways that researchers have used to estimate discretionary accruals.
c. A manager, whose bonus is related to reported net income, finds that net income for the year (before bonus) is below the bogey of the incentive plan. What type of earnings management might the manager then engage in? Which of the accruals in part a would be most suitable for this purpose?Explain.

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