The income statement of Transparency Accounting Services Ltd. reported the following results of operations:
Earnings from operations...................................................................... $178,064
Income from discontinued operations, net of tax................................... 149,755
Income tax expense................................................................................... 58,761
Net earnings............................................................................................ 269,058
Other comprehensive income:
Unrealized loss on investments.............................................................. (32,961)
Comprehensive net income................................................................... $236,097
Suppose Transparency's management had reported the company's results of operations in this manner:
Earnings before income taxes ................................................................ $352,384
Income tax expense ................................................................................. 116,287
Net earnings .......................................................................................... $236,097
Requirements
1. Does it really matter how a company reports its operating results? Why? Who could be helped by management's action? Who could be hurt?
2. Suppose Transparency's management decides to report its operating results in the second manner. Evaluate the ethics of this decision.