How can the answer be improved? is reclassifying period costs as product costs ethical Ethics in Accounting. Why would reclassifying period costs and product costs increase this period's reporting earnings? The classification of period costs into product costs increases the reporting earnings of the period. The period cost is treated as an expense in the income statement of the current period in which it occurred.
Why would reclassifying period costs as product costs increase earnings? Asked Nov 11, 2010, 05: 38 AM 3 Answers M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. is reclassifying period costs as product costs ethical
The greater your period costs, the smaller your earnings for that period, and vice versa. Therefore reclassifying period cost to product costs moves the costs from being an expense on the Income Statement to being part of the Balance Sheet. However, reclassifying the period costs to product costs is unethical and illegal. The SarbanesOxley Act of 2002 requires that CEOs must certify the reliability and accuracy of corporate financial reports. These costs are expenses on the income statement in the period in which they are incurred, using the usual rules of accrual accounting. Reclassifying the period costs to product cost would greatly affect the income statement. The actual expense in the income statement will be understated. is reclassifying period costs as product costs ethical If some units are unsold at the end of the period, the costs of those unsold units are treated as assets. Therefore, by reclassifying period costs as product costs, the company is able to carry some costs forward in inventories that would have been treated as current expenses. Chapter, Problem is solved. 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 of work in process and finished goods at the end of the year. Comment on the following questions. A cost that is classified as a period cost will be recognized on the income statement as an expense in the current period. A cost that is classified as a product cost will be recognized on the income statement as an expense (i. e. , cost of goods sold) only when the associated units of product are sold. Required What are the ethical considerations in this case? Why would reclassifying period costs as product costs increase the period's reported earnings? Do you believe Gallant's actions are ethical? Why or why not? Address consequences and ethical considerations for each proposed action separately.