John Woo is the director of finance for Biomedic Inc., a biotechnology company. John is reviewing...

 

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John Woo is the director of finance for Biomedic Inc., a biotechnology company. John is reviewing the preliminary financial statements for a meeting of the board of directors scheduled for later in the day. Unfortunately for the company, the preliminary net income figure is coming up short. John knows that Biomedic Inc. offers a warranty on many of the products it sells and warranty expense is computed as a percentage of sales. John is considering modifying his estimate of warranty expense from 1.4 percent of sales down to 1 percent. This modification would result in a $1,420,000 increase in net income. More importantly, it would result in the firm's being able to report that it achieved its targeted net income figure. What issues should John consider before he orders the changes to be made to the income statement? John Woo is the director of finance for Biomedic Inc., a biotechnology company. John is reviewing the preliminary financial statements for a meeting of the board of directors scheduled for later in the day. Unfortunately for the company, the preliminary net income figure is coming up short. John knows that Biomedic Inc. offers a warranty on many of the products it sells and warranty expense is computed as a percentage of sales. John is considering modifying his estimate of warranty expense from 1.4 percent of sales down to 1 percent. This modification would result in a $1,420,000 increase in net income. More importantly, it would result in the firm's being able to report that it achieved its targeted net income figure. What issues should John consider before he orders the changes to be made to the income statement?

Answer rating: 100% (QA)

Before John orders the changes to be made to the income statement he should consider several important issues 1 Financial Reporting Integrity John sho... View the full answer