Question

The following narrative describes the process by which a promotions company (SprintyPrint inc.) calculates and records bonuses for company executives. Prepare a complete systems documentation as described in Gelinas, Dull, Wheeler and Hill, Chapter 4, pages 116-129. The final assignment should include tables, and DFDs similar to Figure 4.8, Table 4.1, Figure 4.9, Figure 4.10, Table 4.2, and Figure 4.11. An executive summary in the beginning of the memo will help get your ideas across.

Additional Notes:

• The final document should be a single PDF of professional quality (e.g. it should contain a title, a descriptive introduction/executive summary, page numbers, tables, diagrams, etc.)
• You should use Lucid Chart to complete the DFDs.
• Assume that all employees of SprintyPrint do their daily work on Desktop computers.
• Please post your questions on Discussions board if you have any.
  

BONUS ACCRUAL PROCESS MEMO

SprintyPrint pays a year-end bonus to its top three executives (CEO, CFO, COO). The bonus is based on the company’s financial performance for the year. No other employees in the company receive any form of bonus compensation. The bonus plans for each of the top executives are approved by the Compensation Committee of the Board of Directors each year. For the past 10 years, the basic structure of the bonus compensation scheme has remained the same; however, percentages and thresholds frequently change from year to year and vary based on the executive.

The bonus compensation scheme is a tiered system where executives’ bonus compensation depends on the tier in which company’s financial performance falls. The bonus structure incentivizes executives by providing increasingly higher bonuses for achieving improvement over the prior year’s performance. The following is an example of the basic bonus structure for the CEO:

Tier 1: The bonus is equal to 20% of the CEO’s annual salary if the company’s Gross Profit increases from the prior year by between 1.00% and 1.99%.

Tier 2: The bonus is equal to 25% of the CEO’s annual salary if the company’s Gross Profit increases from the prior year by between 2.00% and 3.99%.

Tier 3: The bonus is equal to 50% of the CEO’s annual salary if the company’s Gross Profit increases from the prior year by between 4.00% and 4.99%

Tier 4: The bonus is equal to 50% of the CEO’s annual salary PLUS 0.1% of Gross Profit if the company’s Gross Profit increases from the prior year by at least 5%.

Calculations required to prepare the bonus accrual entry are performed in an Excel spreadsheet. The Assistant Controller (Jane Roberts) maintains the spreadsheet and updates it each year with the assistance of the Payroll Department. Jane brings the spreadsheet to the Payroll Department Head (Carolyn Baxter) on a USB drive (the file is not emailed due to its sensitive/confidential nature). Using payroll records, Carolyn modifies the spreadsheet to update the current salaries for each of the 3 executives. When she is done, she saves the file and returns it to Jane on a USB drive.

Next, Jane downloads year-end General Ledger information necessary to calculate Gross Profit for the current year and prior year. Then Jane inserts the downloaded data into her spreadsheet and inputs formulas to calculate the Gross Profit percentage change from prior year to current year.

Finally, Jane obtains the Compensation Committee’s report from the Board of Directors. The report shows the approved bonus compensation plans for each of the three executives. Using those plans and her calculations of financial performance change from the prior year to the current year, Jane updates the formulas and percentages within the spreadsheet to calculate the total amount of bonus compensation that should be paid to the three executives.

The bottom of the spreadsheet shows the journal entry that should be made based on the spreadsheet calculations. For example:

Dr. Bonus Expense                  $XX,XXX

                        Cr. Bonus Payable                                 $XX,XXX

Jane prints the required journal entry and brings the print-out to the Staff Accountant (Derek Abraham) who enters the journal entry into the General Ledger system.

Jane then provides the Excel spreadsheet showing the journal entry to the Controller (Marissa McDonald) for review. Jane also gives Marissa the supporting documentation for the spreadsheet (i.e., Compensation Committee approved/signed report showing bonus and system downloads on performance in the prior and current year). If Marissa finds any errors in her review, she requires Jane to fix the problems, and then Derek must make a correcting journal entry.

Finally, once Marissa reviews and approves the spreadsheet and journal entry, Jane gives Carolyn Baxter (Payroll Department Head) the spreadsheet so that she can prepare to pay the executives in the next payment cycle.

Answer 1

Firstly it says that SprintyPrint pays a year-end bonus to its top three executives (CEO, CFO, COO). Sasic bonus structure is mentioned in the problem.

Break up of the activities being completed and the entities that are completing them:

Thus, as given in the above table various activites and their break up is given to you so that the activities and the entities performing them is clear.