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Chapter 24: 14Q (page 1445)

Olga Conrad, a financial writer, noted recently, 鈥淭here are substantial arguments for including earnings projections in annual reports and the like. The most compelling is that it would give anyone interested something now available to only a relatively select few鈥攍ike large stockholders, creditors, and attentive bartenders.鈥� Identify some arguments against providing earnings projections.

Short Answer

Expert verified

Since the future is not predictable, the data that has been spoofed has led to discrimination and will be inconvenient for the organization.

Step by step solution

01

Meaning of Annual Reports

The annual report may be a report made by a company each year that includes the company's audited accounts, as well as a statement of profit or loss and how the administration believes the company will do in the future.

02

Identifying arguments providing earning projection

Arguments against providing earnings projections are as follows:

a) No one can anticipate the future. Subsequently, figures, whereas passing on an impression of accuracy around the future will by the by definitely be wrong.

b) Organizations will not endeavor to create comes about which are within the stockholders鈥� best interest but simply to meet their distributed figures.

c) When figures are not met, there will be recriminations and likely lawful activities.

d) Disclosure of figures will be inconvenient to organizations since it'll completely illuminate not as they were investors but competitors (foreign and domestic).

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Most popular questions from this chapter

Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2018.

A

B

C

D

E

Sales revenue

\(40,000

\)75,000

\(580,000

\)35,000

\(55,000

Cost of goods sold

19,000

50,000

270,000

19,000

30,000

Operating expenses

10,000

40,000

235,000

12,000

18,000

Total expenses

29,000

90,000

505,000

31,000

48,000

Operating profit (loss)

\)11,000

\((15,000)

\)75,000

\(4,000

\)7,000

Identifiable assets

\(35,000

\)80,000

\(500,000

\)65,000

\(50,000

Sales of segments B and C included intersegment sales of \)20,000 and $100,000, respectively.

Instructions

(a) Determine which of the segments are reportable based on the:

2) Operating profit (loss) test.

The FASB requires a reconciliation between the effective tax rate and the federal government鈥檚 statutory rate. Of what benefit is such a disclosure requirement?

What is the difference between a CPA鈥檚 unqualified opinion or 鈥渃lean鈥� opinion and a qualified one?

Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2018.

A

B

C

D

E

Sales revenue

\(40,000

\)75,000

\(580,000

\)35,000

\(55,000

Cost of goods sold

19,000

50,000

270,000

19,000

30,000

Operating expenses

10,000

40,000

235,000

12,000

18,000

Total expenses

29,000

90,000

505,000

31,000

48,000

Operating profit (loss)

\)11,000

\((15,000)

\)75,000

\(4,000

\)7,000

Identifiable assets

\(35,000

\)80,000

\(500,000

\)65,000

\(50,000

Sales of segments B and C included intersegment sales of \)20,000 and $100,000, respectively.

Instructions

(a) Determine which of the segments are reportable based on the:

3) Identifiable assets test.

Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich鈥攂ut, rats!, even recourse to the Freedom of Information Act didn鈥檛 help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole鈥攂ut no one was very eager to salute. Even after some of the more objectionable features鈥攃ompulsory corrections and detailed explanations of why the estimates went awry鈥攚ere peeled off the original proposal.

Seemingly, despite the Commission鈥檚 smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a 鈥淪afe Harbor鈥� rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do).

Instructions

  1. Why are corporations concerned about presenting profit forecasts?
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