Brief Case Assignment #2

Requirement:

Read the background info below. Assume the role of a CPA who has been asked by your client (the controller of Clarkson Outdoors, Inc.) to provide some accounting guidance for shipping and “handling” charges for internet sales.

Use your available research resources (GAAP codification, textbook) to research the accounting questions asked by the controller.

Prepare a brief (no more than one - page) memo to the controller that addresses, in your own words, the alternatives the controller must considers when making the decision to add a shipping and/or handling charge to customers that purchase online. Cite the appropriate accounting standards to support any alternatives you present to the client. Conclude with your recommendation to the controller.

Grade:

This is a basic writing assignment that should take no more than one hour to complete. You will receive full points based on (1) providing a recommendation based on sound accounting practices, (2) clarity and organization and (3) grammar and spelling.

Case Background:

Your client, Clarkson Outdoors, Inc. is a wholesale merchandising business that sells outdoor furniture. The company’s average monthly sales revenue is $250,000 representing approximately 5,000 inventory items sold. Due to rising fuel costs and the gen eral rising costs of processing orders, including returns, the controller is considering adding a charge for shipping and or handling costs on products sold through its website. What is the authoritative guidance for reporting these costs? The controller has one specific question about whether the company must pass through to the customer the exact charge the company would incur or whether it can assess charges based on some reasonable rate or schedule.

It’s November 20, 2018. You are the controller of Lashkey Co., a $400 million (sales) manufacturing company. As you prepare forecasts for the year ending December 31, 2018, you discover that cash flow from operating activities is substantially lower than was expected. You ask your staff to suggest steps that could be taken before the end of the year to boost cash flow from operating activities. Following are your staff’s recommendations. For each one, indicate if it would (answer “yes”) or would not (answer “no”) increase cash flow from operating activities. If your answer is “no,” explain why not.

1. Offer customers a 1% discount on accounts receivable paid before December 27, 2018.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

2. Extend the depreciable lives of all equipment by 5 years. The company has a significant investment in new machinery, currently depreciated over 10 years.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

3. Instead of declaring and paying a dividend in December, declare and pay a dividend in January.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

4. Starting December 1^st, tell vendors that you are installing a new accounting system and won’t be able to pay invoices until January.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer.
(a) Tax is just the transfer of welfare as the sum people pays is the revenue of the government.
(b) If the elasticity of demand is 0, or there is no change in quantity traded due to taxation,
there is no excess burden of the tax.
(c) Marginal excess burden is greater than average excess burden.
(d) Imposition of Pigouvian tax to correct externality always enhances e¢ ciency on the
whole.
(e) (R & G) E¢ ciency is maximized when all commodities are taxed at the same rate.
(f) In our discussion on optimal income taxation in class, optimal áat tax rate t increases
as elasticity of labor supply increases.
(g) Higher income tax rate reduces labor supply.
(h) If an individual is a net borrower, one will reduce his borrowing with higher tax rate.
(i) If an income deduction is given for a pension saving, it will induce more saving.
(j) Income tax will reduce risk taking as it reduces the after tax return of risky investment.

(c) Sur Power & Utility company is considering to replace the existing high power ammonia compressor with a new one. Maintenance records show the relative frequency of the compressor for 300 week period is given in Table Q5(c)-1.
(i) Use Monte Carlo Simulation, the probability distributions and the random numbers given in Table Q5(c)-2, to simulate the breakdowns which occur in the next 25 week lifespan.
Calculate the average number of breakdowns. Decide which blower will have the better reliability if the new blower is expected to have an average one(1) breakdown per week.

Summary:

Critical background information about the company, the environment it is operating in, and other factors of significance (Industry and Company analysis)

Company information:

Bibitor LLC is an alcohol company that sells wines and spirits that operates in Lincoln state.

It has 79 stores, with the top 5 revenue generating stores being stores : 76, 73, 34, 38, 66.

Total sales equal around 442 million dollars, and COGS is around 303 million dollars.

Average sales per store is around $5,583,184, and the median for sales is $3,961,997. Additionally, the average COGS per store is $3,741,375, with the median being $2,680,286.

The most popular size for wine is 750mL, generating about 128 million dollars in sales, with around 10.1 million of bottles sold.

The most popular size for spirits is 1.75L, generating about 127.4 million in sales from about 5.8 million bottles.

   Environment information:

Assuming the legal drinking age is 18, there are 1,045,343 potential customers in Lincoln

Total alcoholic beverage sales in the US was about 223 billion dollars in 2016, and trends indicate that the industry will keep growing

Younger generations favor spirits and wine more, with 51.2% of millenials/ Gen X buying beers, and 33.6% buying spirits. (Beverage Information Group, John Beaudette)

Should Bibitor open the 80th store? To support your answer, include a side by side variable income statement with and without the 80th store. Include any assumptions and/or limitations of your total cost model.

Keep in mind that each transaction triggers two offsetting entries in the BoP

Example: Starbucks buys coffee from an Indonesian farmer for USD 50 K who in return acquires fertilizer from a US manufacturer

US Current Account (CA):

Trade: -50 K (import of coffee)

Trade: +50 K (export of fertilizer)

For each of the following transactions, indicate how the transaction would appear in the US balance of payments. Indicate the USD amount (with the correct sign) as well as the appropriate accounts and sub-accounts:

1. A U.S. oil company imports oil from a firm in Canada. The firm pays USD 135M for the oil which is kept in a US bank by the Canadian firm

2. Apple pays USD 790 M dividends to its non-US shareholders who reinvest the dividends in Apple shares.

3. A U.S. company acquires a 40% stake in a joint venture (JV) in China for USD 74 M. The payment is converted from USD to RMB by the People’s Bank of China (PBC), i.e. the Chinese central bank, at the official exchange rate. PBC then provides the USD to a state-owned Chinese enterprise that acquires a US firm.

Express Co, purchased equipment on March 1, 2015, for $95,000 on the account. The equipment had an estimated useful life of five years, with a residual value of $5,000. The equipment is disposed of on February 1, 2018. Express Co, use the diminishing-balance method of depreciation with a 20% rate and calculates depreciation for partial periods to the nearest month. The company has an August 31 year end.

a) Record the acquisition of the equipment on March 1, 2015,

b)Record depreciation on August 31,2015,2016 and 2017.

c)Record the disposal on February 1, 2018, under the following assumptions.

1: It was scrapped with no residual value.

2: It was sold for $55,000

3: It was sold for $45,000

4: It was traded for new equipment with a list price of $97,000. Express was given a trade-in allowance of $52,000 on the old equipment and paid the balance in cash. Express determined the old equipment fair value to be $47,000 at the date of the exchange.

What are the arguments in favor of recording gains and losses on disposals of property plant and equipment as part of the profit from the operation? what are the argument in favor of recording them as non-operation items?

Globo opened its first store in 1992 and it is Canada's largest family shoe store with the widest selection of fashion-right footwear. The company has recently launched an online store. Sales via the internet have been sluggish compared to their brick and mortar stores, and management suspects that its regular customers have concerns regarding the security of online transactions. To determine if this is the case, they plan to survey a random sample of their regular customers. Under consideration are several plans for selecting the sample. Name the sampling strategy for each of the following.

a.Regular customers belong to a rewards program and have a customer rewards ID number. Randomly select 100 numbers.

b. Globo has stores in five different cities in Ontario, Canada. Randomly select one of the stores and survey all regular customers that belong to its rewards program.

c. Globo has an alphabetized list of regular customers who belong to their rewards program. After randomly selecting a customer on the list, every 25th customer from that point on is chosen to be in the sample.

d. Customers are grounded into four age categories ( under 21, 21 to 35, 36 to 50, and older than 50). Randomly select 10 regular customers in each age category.

You have been hired as an outside consultant for a large durable medical equipment and medical supply company. The company specializes in a wide range of medical supplies and equipment. Some of its most profitable offerings include hospital bed rental to private residents, wheelchairs, walkers, scooter and other mobility equipment. However, they have come to realize that competition is increasing and market share is getting tight. They note that most of their customers are new costumers and very few are repeat customers. They are concerned with customer loyalty. The medical supply company owner has asked you to train develop a plan to improve customer loyalty and train the staff.

Create a report that describes and critically analyzes at least 5 contemporary best practices to improve customer loyalty in a health care organization.

The Rinadale Company manufactures and sells very high-quality men’s business suits to major department store chains. To stimulate sales, Rinadale Company offered all new first-time customers a special deal. New customers could purchase up to $100,000 of suits using an open credit line. If the purchaser continues to make timely payments on any subsequent purchases, Rinadale Company defers the original purchase payment due date. If the purchaser fails to make additional purchases within sixty days or timely payments, the amount of the original purchase is immediately due along with interest of the prime rate plus 2.5% from the date of the original sale. Describe, in a report to the President, the recommended accounting treatment. Be sure that both situations are covered in your report: continuing purchases and failure to make purchases.