1. ASHFORD BUS 630 Week 1 DQ 2
Kranbrack Corporation
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1st Posting Due by Day 3. Kranbrack Corporation. M.K. Gallant is president of
Kranbrack Corporation, a company whose stock is traded on a national
exchange. In a meeting with investment analysts at the beginning of the year,
Gallant had predicted that the company’s earnings would grow by 20% this year.
Unfortunately, sales have been less than expected for the year, and Gallant
concluded with two weeks of the end of the fiscal year that it would impossible to
ultimately report an increase in earning as large as predicted unless some drastic
action was taken. Accordingly, Gallant has ordered that wherever possible,
expenditures should be postponed to the new year – including canceling or
postponing orders with suppliers, delaying planned maintenance and training, and
cutting back on end-of-the-year advertising and travel. Additionally, Gallant
ordered the company’s controller to carefully scrutinize all costs that are currently
classified as period costs and reclassify as many as possible as product costs.
The company is expected to have substantial inventories of work in process and
finished goods at the end of the year. Comment on the following questions.
Respond to at least two of your fellow students’ postings.
a. Why would reclassifying period costs as product costs increase this period’s
reported earnings?
b. Do you believe Gallant’s actions are ethical? Why or why not?