Why the fasb acted to limit such behavior

Assignment Help Finance Basics
Reference no: EM131408292

After being asked how General Electric has maintained such consistent earnings growth over the past decade, Dennis Dammerman, the company's chief financial officer, said, "We're the best company in the world." However, the Wall Street Journal offered another explanation. It noted that over a ten-year period General Electric recorded six discretionary restructuring charges, ranging in magnitude from $147 million to over $1 billion-totaling $3.95 billion. Coincidentally, in each of the years when a restructuring charge was recognized, GE booked a sizable one-time gain. In one year, for example, the company recognized an $858 million one-time gain due to changes in accounting methods for taxes and inventory while taking a $1,027 million restructuring write-off. In another year, GE matched a $1 billion restructuring charge against the $1.4 billion one-time gain it recognized on the sale of an aerospace unit to Martin Marietta. "To smooth out fluctuations, GE frequently offsets one-time gains from big asset sales with restructuring charges; that keeps earnings from rising so high that they can't be topped the following year. GE also times sales of some equity stakes and even acquisitions to produce profit gains when needed."

REQUIRED:

a. Determine what reporting strategy GE seems to be using, and explain how it works.

b. Explain how discretionary restructuring charges help GE to implement that reporting strategy and why the company would want to pursue it.

c. The Wall Street Journal reported that "investors love restructurings" and that such charges seem to boost stock prices. Yet the FASB later cracked down on this popular corporate practice. Explain why investors might love restructurings, why stock prices seem to rise when they are announced, and why the FASB acted to limit such behavior.

Reference no: EM131408292

Questions Cloud

During an economic recession : Discussion #1: During an economic recession, discuss how management's or a union's bargaining power might be affected. Give an appropriate business example to illustrate what you mean, support it with at least one reference.
Can he conclude that the quarter of the game is independent : At the 0.025 level, can he conclude that the quarter of the game is independent of the result of the free-throw opportunity?
Identify the informal fallacies : Identify the informal fallacies, assumptions, and biases involved in manipulative appeals and abuses of language and create written work utilizing the concepts of critical thinking.
Describe the gender theory that you picked : This assignment challenges you to examine theoretical perspectives about gender identity and compare them to your own gender identity development. You will use your personal experiences to answer questions about identity and explore any related co..
Why the fasb acted to limit such behavior : The Wall Street Journal reported that "investors love restructurings" and that such charges seem to boost stock prices. Yet the FASB later cracked down on this popular corporate practice. Explain why investors might love restructurings, why stock ..
Best practices in strategic compensation : Describe three to four key best practices in strategic compensation. Focus on theories or concepts for approaching a total rewards strategy, the significance and impact of job classifications in creating a total rewards strategy and approaches to ..
Identify areas of interest and three newly acquired skills : Many of you may not know where to begin when thinking about your college experience. It is often difficult to organize memories and impressions into something that adequately captures all that you have learned. This exercise will help you make sen..
Use the given level in comparing the publicity techniques : The accompanying results are the number of home burglaries during the test month for communities in which the respective publicity methods were employed. Use the 0.05 level in comparing the publicity techniques.
Major consulting firm : For this week, discuss your thoughts on the following ethical dilemma: You work in HR at a major consulting firm and one of the consultants comes to you and says that he cannot in good faith take an assignment at the Philip Morris company because ..

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Remaining loan amount necessary to sell

A truck costing $112000 is paid off in monthly installments over four years with 8% APR. After three years the owner wishes to sell the truck. What is the closest amount from the following list that he needs to pay on his loan before he can sell h..

  Bank within two business days

Your debit card is stolen, and you report it to your bank within two business days. How much money can you lose at most?

  Accounting ethical breach and to organization

Given the corporate ethical breaches in recent times, assess whether or not you believe that the current business and regulatory environment is more conducive to ethical behavior. Provide support for your answer.

  The company will incur a flotation cost of 120 of the

average corporations stock currently sells for 45.00 per share it is expected to pay a dividend of 3.10 next year its

  Which of the following statements is most incorrect

A 10-year corporate bond has an annual coupon rate of 9%. The bond is currently selling at premium. Which of the following statements is most incorrect?

  Current international finance related issue

You are required to do a short 10-minute presentation on any current international finance related issue. You are free to choose any current international-finance related issue or news based on your own interest. Besides the Internet, some other g..

  Q1 let the returns also yields given us t-bill 8 5-year

q.1 let the returns also yields given u.s. t-bill 8 5-year u.s. t-note 7 ibm common stock 15 ibm aaa corporate bond

  Aspects of finance that management must understand

Indicate the various aspects of finance that management must understand. Describe why a manager needs to understand the characteristics and importance of financial markets including risk and efficiency. Describe why cash flow is more important than ..

  Identify a ldquoriskyrdquo and a ldquosaferdquo investment

identify a ldquoriskyrdquo and a ldquosaferdquo investment and provide rationale to justify your choices. also discuss

  Set up an income statement. what is expected net income

The Menendez Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75 percent of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than d..

  What is the value of the microbrewery''s depreciation tax

You are considering adding a microbrewery on to one of your firms existing restaurants. This entails an investment of $40,000 in new equipment. This equipment will be depreciated straight line over five years. If your firm's marginal corporate tax ra..

  The firms marginal tax rate is 40 percent if the firm

two years ago agro inc. purchased an ace generator that cost 250000. agro had to pay an additional 50000 for delivery

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd