Blog

Professor Nunez uses pickup trucks to harvest blueberries. A…

Professor Nunez uses pickup trucks to harvest blueberries. At the beginning of 2024, his lab had 5 pickup trucks. During 2024, his lab purchased 5 new trucks, and 2 trucks wore out and became unusable. During 2024, Professor Nunez’s net investment was ____, and his gross investment was ____.

Under Dillinger Company’s compensation plan, the manager’s b…

Under Dillinger Company’s compensation plan, the manager’s bonus compensation is based on current reported net income only. The bonus plan has a bogey and a cap. The bogey is the reported net income level at which the manager will earn no bonus. That is, reported net income needs to be above the bogey for the manager to earn a bonus. The cap is the maximum net income number used to calculate the bonus earned. Above the cap there is no additional bonus earned. Therefore as reported net income increases, the manager’s bonus increases between the bogey and the cap.  Discuss how the manager’s earnings management behavior may differ based on this type of compensation plan. Note – be sure to discuss management’s behavior at different levels of net income for a complete response. For example, when net income is significantly below the bogey, just below the bogey, above the bogey but below the cap, and above the cap. Note: I do not need examples of methods used to manage earnings, just whether the manager will manage earnings at all, and if so, whether she will manage earnings up or down.