Question: Income Shifting and Net Operating Assets (Easy) The chief financial officer of a firm presented the CEO with a set of financial statements showing $2,234 million in after-tax operating income. This number yielded a return on beginning-of-period net operating assets of 9 percent. The CEO complained that this number was below the 12 percent RNOA target they had promised and asked if any "accounting tricks" were available to meet the target.
a. How much must the CFO add to net operating assets to manipulate the income?
b. What is the likely effect of the earnings management on RNOA in the following year?