Problem Six: Adjusting Financial Statements
You are examining the financial statements of ABC Corporation for Year 2. ABC Corporation manufactures widgets and has a unionized workforce. You are trying to assess the earnings persistence of the company. To aid you in this endeavor you are adjusting earnings for non-recurring, non-sustainable items.
Below is a list of items you believe might affect earnings persistence. Indicate why the item may affect earnings persistence and how each item might affect net income.
Company has:
1. LIFO Liquidation of $3M
2. Decreased the discount rate used to determine post-retirement health benefits
3. Accumulated Depreciation as a percentage of gross depreciable assets is ninety percent
4. Labor unions went on strike for one month during the year

Question

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The Answer of Problem Six: Adjusting Financial Statements
You are examining the financial statements of ABC Corporation for Year 2. ABC Corporation manufactures widgets and has a unionized workforce. You are trying to assess the earnings persistence of the company. To aid you in this endeavor you are adjusting earnings for non-recurring, non-sustainable items.
Below is a list of items you believe might affect earnings persistence. Indicate why the item may affect earnings persistence and how each item might affect net income.
Company has:
1. LIFO Liquidation of $3M
2. Decreased the discount rate used to determine post-retirement health benefits
3. Accumulated Depreciation as a percentage of gross depreciable assets is ninety percent
4. Labor unions went on strike for one month during the year