After being asked how General Electric has maintained such consistent earnings growth over the past decade, Dennis Dammerman, the company’s chief financial officer says, “We’re the best company in the world.” However, The Wall Street Journal (November 3, 1994) offers another explanation. It notes that from the period of time, 1983 through 1993, General Electric recorded six discretionary restructuring charges, ranging in magnitude from $147 million to over $1 billion—totaling $3.95 billion. Coincidentally, in each of the years when a restructur¬ ing charge was recognized, GE booked a sizable one-time gain. In 1987, for example, the com¬ pany recognized an $858 million one-time gain due to changes in accounting methods for taxes and inventory while taking a $1,027 million restructuring write-off, and in 1993 GE matched a $1 billion restructuring charge against the $1.4 billion one-time gain it recognized on the sale of an aerospace unit to Martin Marietta. “To smooth out fluctuations, GE frequently offsets one-time gains from big asset sales with restructuring charges; that keeps earnings from rising so high that they can’t be topped the following year. GE also times sales of some equity stakes and even acquisitions to produce profit gains when needed.” REQUIRED:

a. What reporting strategy does GE seem to be using, and explain how it works.

b. Explain how discretionary restructuring charges help GE to implement that reporting strat¬ egy, and why the company would want to pursue it.

c. The Wall Street Journal (November 2, 1994) reports that “investors love restructurings” and that such charges seem to boost stock prices. Yet, the FASB is seriously considering cracking down on this popular corporate practice. Explain why investors might love restructurings, stock prices seem to rise when they are announced, yet the FASB is acting to limit such behavior