Quality of Earnings and Accounting Estimates: A Case of Decisions

This case demonstrates the effect of accounting estimate decisions on quality of earnings. Many accounting decisions involve the use of estimates in situations where absolute certainty is not available. The case involves three activities. First, you will read a hypothetical but realistic scenario involving period‐end adjustments for the division of a large company. Second, assuming the role of the division controller, you will make the four required decisions and determine division net earnings after adjustment. Finally, you will prepare a detailed communication documenting the rationale for your decisions, which will form the basis for later classroom discussion. Completion of the case will enable you to resolve unstructured problems utilizing judgment and assumptions and to develop logical reasoning for your decisions.