Posted: July 14th, 2022

M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year.

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Discussion #1
M. K. Gallant is president of
Kranbrack Corporation, a company whose stock is traded on a national exchange.
In a meeting with investment analysts at the beginning of the year, Gallant had
predicted that the company’s earnings would grow by 20% this year. Unfortunately,
sales have been less than expected for the year, and Gallant concluded within
two weeks of the end of the fiscal year that it would be impossible to report
an increase in earnings as large as predicted unless some drastic action was
taken. Accordingly, Gallant has ordered that wherever possible, expenditures
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, Gallant 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.
Required Why would reclassifying period costs as product costs increase
this period’s reported earnings?
Do you believe Gallant’s actions are ethical? Why or why not?
*Response should be 200-250 words in length

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