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Advantages of SEC quarterly reporting

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The Theory of the Firm document, the Friedman article, argue that the main goal of a firm in a market economy is to maximize profit (shareholder wealth) over the long term. However, SEC regulations require U.S. corporations to publish operating results on a quarterly basis. How does this short term time frame impact long term profit maximization? Should the SEC change their regulations of public corporations to require only annual reporting of operations? How might this impact stock price in the short term? How do you believe that management deals with these two sometimes competing goals?

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Step 1
This short term time frame impacts long term profit maximization. On one hand if a firm consistently performs well every quarter, its performance over the long term is likely to maximize profit. The short term time frame provides a strong incentive to every firm to perform well every quarter. The SEC regulation that requires US corporations to publish operating results on a quarterly basis allows monitoring of the performance of the corporations by shareholders, lenders, creditors, and other stakeholders. Normally, the time frame should allow for close monitoring of performance but should not adversely affect long term maximization. The company should pursue its long term profit maximization goals irrespective of the quarterly results.

Step 2
The SEC should not change their regulations of public corporations to require only annual reporting of operations. Quarterly reports allow for closer monitoring of ...

Solution Summary

SEC quarterly reporting is discussed step-by-step in this solution. The response also has the sources used.

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Interim Reporting

J. J. Kersee Corporation, a publicly traded company, is preparing the interim
financial data which it will issue to its stockholders and the Securities and Exchange Commission
(SEC) at the end of the first quarter of the 2006-2007 fiscal year. Kersee's financial accounting department
has compiled the following summarized revenue and expense data for the first quarter of the year.
Sales $60,000,000
Cost of goods sold 36,000,000
Variable selling expenses 2,000,000
Fixed selling expenses 3,000,000
Included in the fixed selling expenses was the single lump sum payment of $2,000,000 for television advertisements
for the entire year.
(a) J. J. Kersee Corporation must issue its quarterly financial statements in accordance with generally
accepted accounting principles regarding interim financial reporting.
(1) Explain whether Kersee should report its operating results for the quarter as if the quarter
were a separate reporting period in and of itself or as if the quarter were an integral part of
the annual reporting period.
(2) State how the sales, cost of goods sold, and fixed selling expenses would be reflected in
Kersee Corporation's quarterly report prepared for the first quarter of the 2006-2007 fiscal
year. Briefly justify your presentation.
(b) What financial information, as a minimum, must Kersee Corporation disclose to its stockholders
in its quarterly reports?

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