I'm sorry you're going through this with your DD. Hopefully, once you explain how upset DD is, the teacher will understand that there is a problem here. How much of the grade is from AR? Maybe you could work it out that DD lowers her point total in exchange for extra credit in a different area to make up for it. Or, maybe DD could accept a slightly lower grade if her AR goal is lowered or not met. I personally dislike AR because, as it was explained to me, it's an incentive for kids who don't like to read. Being forced to read is not a way to make an enthusiastic reader. IMHO.
