The executive officers of rouse corporation have the

Reference no: EM13454559

The executive officers of Rouse Corporation 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 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 2012,Gail 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?

Reference no: EM13454559

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