Suppose a company incurred $ 1 million in expenses related to the restructuring of its business . These expenses related to store closings and severance pay for terminated employees . Because the restructuring is going to cause the company to have a " bad year , " the CFO would like to make it a " really bad year . " The CFO encourages the chief accountant to over-estimate certain expenses and charges . The CFO explains " if we take the extra charges this year , then we don't have to report those charges in future years . " 

Required : 

1 . Understand the reporting effect : If the chief accountant follows the CFO 's request , how will net income be affected in the current year ? How will it be affected in future years ? 

2 . Specify the options : If the chief accountant does not follow the CFO 's request , how is the balance of retained earnings affected in the current year ? 

3 . Identify the impact : Are investors and creditors potentially harmed by the CFO 's suggestion ? 

4 . Make a decision : Should the chief accountant follow the advice of the CFO ?

Answer rating: 100% (QA)

Reporting Effect Current Year Net income in the current year will be significantly lower due to the overestimated expenses This will result in a lower ... View the full answer