Potential customers can be drawn from a firm’s existing customers or non-customers. When would companies tap into its existing customers? New customers? How are the criteria used for customer selection different in the two situations?  

Each part should be no more than 1 page in length.

Part I

The rules of accounting provide management with “some” latitude in determining when revenue is earned. Assume that a company normally required acceptance by its customers prior to recording revenue as earned, delivers a product to a customer near the end of the quarter. The company believes that customer acceptance is assured, but cannot obtain it prior to the quarter-end. Recording the revenue would assure “making its numbers” for the quarter. Although formal acceptance is not obtained, the salesperson records the sale, fully intending to obtain written acceptance as soon as possible.

1. What are the revenue recognition requirements in this case?

2. What are the ethical issues relating to this sale?

3. Assume you are on the board of directors of this company. What safeguards can you put in place to provide assurance that the company’s revenue recognition policy is followed?

Part II

Research and review what a financial statement derivative is. Identify an example and how company’s use to leverage the business activities.

Part III

A company’s return on net operating assets (RNOA = NOPAT/Average NOA) is commonly used to evaluate financial performance. If managers cannot increase NOPAT, they can still increase this return by reducing the amount of net operating assets (NOA). In bullet form, list specific ways that managers could reduce the following assets:

1. Receivables

2. Inventories

3. Plant, property equipment

Consumer Reports (January 2005) indicates that profit margins on extended warranties are much greater than on the purchase of most products. In this exercise we consider a major electronics retailer that wishes to increase the proportion of customers who buy extended warranties on digital cameras. Historically, 20 percent of digital camera customers have purchased the retailer’s extended warranty. To increase this percentage, the retailer has decided to offer a new warranty that is less expensive and more comprehensive. Suppose that three months after starting to offer the new warranty, a random sample of 525 customer sales invoices shows that 130 out of 525 digital camera customers purchased the new warranty. Find a 95 percent confidence interval for the proportion of all digital camera customers who have purchased the new warranty. Are we 95 percent confident that this proportion exceeds .20? (Round your answers to 3 decimal places.)

3a. Name & explain three significant ways that a monopolist behaves differently than a perfectly competitive firm? How does this impact customers?

b. does your answer change if the monopolist is the government?

c. how does price discrimination fit in?

Swizzle, Inc. began operations in November of the current year with the following transactions occurring during the month:

Required:

Explain the impact of each transaction on the fundamental accounting equation, using the following format:

Transaction: August 1, Obtained a bank loan totaling $100,000

Example answer:

August 1:

• Cash (asset) increases by $100,000
• Bank Loan (liability) increases by $100,000

Make sure you specify the following:

The account(s) affected, the amount, whether it increases or decreases, and whether it is an asset, liability, equity, revenue or expense. For any amounts that are on the income statement, you should use the specific account (i.e. revenue, cost of goods sold, salaries expense, etc.).

5. The Claron Corporation’s main competitor, Brighton company, just filed for bankruptcy, presenting a potential opportunity for an increase in customers and revenue at Claron. As a result, several of Brighton’s salespeople have contacted George Wills, Claron’s vice president of sales, inquiring about employment at Claron. Currently Wills has no openings on his 10-person salesforce. However, he does not want to dismiss the Brighton reps, some of whom are top performers that might be able to enhance Brighton’s revenue stream that has been falling for the past year.

            After speaking to his CEO about adding a position to his salesforce, Wills was given permission to do so as long as the new salesperson made more of his salary in commissions than base salary. Wills, however would like to add three of Brighton’s salespeople. Currently there are four salespeople on Wills’s staff that outperform the other six, who are approximately equal in talent. Yet, Wills is hard-pressed to identify a clear laggard whom he would dismiss in favor of the competition’s salespeople. Wills is also concerned that he could disrupt the team chemistry he has worked hard to build the past two years by firing some of his current salespeople and hiring those from Brighton. However, he does not know if he can pass up this opportunity to upgrade his salesforce.

            How should Wills approach this dilemma? Should he hire the new reps and deal with the ramifications of letting two of his people go, or can he afford to pass on the new reps altogether?

PROBLEM ONE The following information pertains to Life Corporation

Month Sales (units) Sales (dollars)

July 1,500 $30,000

August 1,700 34,000

September 1,600 32,000

October 1,700 40,800

November 2,100 54,600

December 2,350 51,700

January 2,300 57,000

February 1,900 51,000

March 1,750 44,000

April 1,600 41,600

May 1,500 30,000

June 1,400 32,200

Of sales, 30% are in cash with the remainder on account.

Accounts Receivable is collected from customers in the following manner:

Month of sale 30%

Month following sale 60%

Second month following sale 10%

Life Corporation desires ending inventory for finished goods to be 30% of next month’s sales.

Each unit requires three pounds of material, each pound costs $2.75. Life Corporation desires ending inventory of raw materials should be 50% of next month’s needs. Materials are purchased on account. Payments are 40% in the month of purchase with the remainder paid in the following month. The previous month’s ending Accounts Payable balance was $11,162. In addition, each unit requires one hour of labor, each labor hour costs $15.

REQUIRED:

1. Prepare a Revenue budget for December, including revenue, cash collections, and accounts receivable.

2. Prepare a Production Budget for December.

3. Prepare a Raw Materials Purchases Budget for December, including cash disbursements.

4. Prepare the Direct Labor Budget including payments.

In 2004, real estate broker Richard Davis called an A&E television executive about partnering on a? new reality show called Flip This House. Davis said he would undertake the financial risks of purchas- ing and later reselling the real estate and he and the network would split the net profits. Davis received confirmation from the network director over the phone and later with three other executives. The network never paid Davis and claimed no agree- ment was made. The district court found on behalf of Davis, and the network appealed. The appellate court stipulated that two facts must be true to find on behalf of Davis: first, that Davis reasonably believed that an agreement was made during the phone conversations and, second, that such a belief would be made by an objectively reasonable per- son. How do you think the court decided? [Davis v. A&E Television, 422 Fed. Appx. 199, 2011 U.S. App. LEXIS 7382.]

What are the differences between recognition of accounts receivables under GAAP and IFRS ? ( please, I need the answer for A/R, not about the differences on revenue recognition in general )