Reference no: EM132648738

Bobby Love is the president of the Fuzzy Noodle Company, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Love had predicted that the company's earnings would grow by 20% by this year. Unfortunately, sales have been less than expected for the year, and Love concluded within two weeks of the end of the fiscal year that it would be impossible to ultimately report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Love has ordered that wherever possible, expenditure should be postponed to the new year ----including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Love ordered the company's controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have substantial inventories at the end of the year.

Question 1. Why would reclassifying period costs as product costs increase this period's reported earnings?

Question 2. Do you believe Love's actions, such as postponing and canceling expenditures, are ethical? Why or why not? Please cite the ethical standards (such as competence, integrity, credibility and confidentiality) to support your opinion.

Question 3. Do you believe Love's action, such as reclassifying period costs as product costs, are ethical? Why or why not? Please cite the ethical standards (such as competence, integrity, credibility and confidentiality) to support your opinion.

Question 4. If you were the company's controller, what would you do?