The comparative balance sheet o f JSA Ltd. at June 30, 2018, is as follows:

JSA Ltd.'s 2018 income statement is as follows:

Required

a. Calculate the various accruals on an item-by-item basis. For each accrual indicate the extent to which t hat 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 t he incentive plan. What type of earnings management might the man age r then engage in? Which of the accruals in part a would be most suitable for this purpose? Explain.

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June 30, 2018 June 30, 2017 Assets Current assets: Accounts receivable (net) $ 76 $ 60 Inventories 35 53 Prepaid expenses 2 1 113 114 Capital assets (net) 37 39 Long-term investments 2 2 Prepaid development costs 40 39 $192 $194 Liabilities and Shareholders' Equity Current liabilities: Bank indebtedness $ 18 $ 4 Accounts payable 64 71 Customer advances 13 8 Current portion of long-term debt 1 2 Current portion of future income taxes 2 1 98 86