The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan are linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the shares; if growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation. In 2014, Joan Devers, the controller of Rouse, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Kurt Adkins, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Devers is not sure she should do this because she believes that the current estimate of bad debts is sound. On the other hand, she recognizes that a great deal of subjectivity is involved in the computation. Instructions
Answer the following questions.
(a) What, if any, is the ethical dilemma for Devers?
(b) Should Devers's knowledge of the compensation plan be a factor that influences her estimate?
(c) How should Devers respond to Adkins's request?
Ethics are very important part for a business, it has equal importance that of other factors in today's world.
Answer and Explanation:
The ethical dilemma is pretty straight forward , shed can simply decrease the estimated of bad debts expense leading to increased compensation.
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from Business 106: Human Resource ManagementChapter 1 / Lesson 10