Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients. It incurred the following labor costs on services for three corporate clients during March 2006:

Direct Labor
Contract 1 $12,000
Contract 2 7,200
Contract 3 28,800
Total $48,000

Jarman allocated March overhead costs of $21,600 to the contracts based on the amount of direct labor costs incurred on each contract.

Required
a. Assuming the revenue from Contract 3 was $65,600, what amount of income did Jarman earn from this contract?
b. Based on the preceding information, will Jarman report finished goods inventory on its balance sheet for Contract 1? If so, what is the amount of this inventory? If not, explain why not.


Click here for the solution: Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

The executive officers of Coach Corp have a performance-based compensation plan

CA16-2 (Ethical issues—compensation plan) The executive officers of Coach Corp have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Coach executives earn 100% of the shares; ifgrowth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additonal compensation.

In 2006, Joanna Becker, the controller of Coach, reviews year-end estimates of bad debt expense and warranty expense. She calculates the EPS growth at 15%. Peter Reiser, 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%. Becker 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.

Answer the following:
a) What, if any, is the ethical dilemma for Becker?
b) Should Becker's knowledge of the compensation plan be a factor that influences her estimate?
c) How should Becker respond to Reiser's request?


Click here for the solution: The executive officers of Coach Corp have a performance-based compensation plan