Could the company be practicing earnings management

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Reference no: EM131411011

Eastman Kodak Company announced plans to cut its workforce by 21 percent over a threeyear period and booked an expense of approximately $1.5 billion, citing its planned transition from its traditional film business to new digital imaging technology. The expense, referred to as a "restructuring charge," covers employee severance payments and disposals of buildings and equipment planned to occur over the next couple of years. Most of the costs are in the areas of the company tied to manufacturing and distributing film and paper for traditional cameras, the focal point of the business for its entire history

REQUIRED:

a. Is it likely that analysts anticipated that Eastman Kodak would be making such a move? Could they have anticipated the exact amount of the costs to Eastman Kodak of the transition? How do you think the stock market reacted to the news of the $1.5 billion charge? Discuss.

b. Explain why Eastman Kodak might have booked the entire charge well in advance of incurring the actual costs. Could the company be practicing earnings management? If so, how might that work?

c. If you were analyzing Eastman Kodak by computing financial ratios, how would you treat the restructuring charge?

d. Name several other companies whose fortunes are tied to a technology that is vulnerable to obsolescence.

Reference no: EM131411011

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