Atlantis Company sells computer components and plans on borrowing some money to expand. After reading a lot about earnings management, Andy, the owner of Atlantis, has decided he should try to accelerate some sales to improve his financial statement ratios. He has called his best customer and asked them to make their usual January purchases by December 31. Andy told the customers he would allow them, until the end of February, to pay for the purchases, just as if they had made their purchase in January.

1. Is Andy's action complying with GAAP? Why or why not? (i.e. what is the revenue recognition principle?)

2. What do you think are the ethical implications of Andy's action?

3. Which ratios will be improved by accelerating these sales?

Analysis of the 4 Ps of the Marketing Mix based on Shoe Carnival, Inc.

a. Product: i. List the company’s primary products or product lines (if there are numerous products falling into many product categories).ii. From which product line, or lines of business, does the company generate most of its revenue? Describe the primary target market of the business. What is the value proposition that the company offers this target market?

b. Price: What is the price (or price range) of the company’s products or product lines? State by product or product line.

c. Placement: What is the, apparent, placement (distribution) strategy for the products or product lines?

d. Promotion: How does the company promote its product or product line? How does it communicate with its customers?i. Describe the promotion mix.

A16-8 Tax Calculations:

Penguin Corp. reported accounting earnings before taxes as follows: 20X6, $675,000; 20X7, $57,000. Taxable income for each year would have been the same as pre-tax accounting income except for the tax effects, arising for the first time in 20X6, of $7,200 in rent revenue, representing $1,200 per month rent revenue collected in advance on 1 October 20X6, for the six months ending 31 March 20X7. Rent revenue is taxable in the year collected. The tax rate for 20X6 and 20X7 is 25%, and the year-end for both accounting and tax purposes is 31 December. The rent revenue collected in advance is the only difference between accounting earnings and taxable income, and it is not repeated in October 20X7.

Required:

Is this a temporary difference? Why, or why not?

What is the accounting carrying value for the unearned rent at the end of 20X6? The tax basis? Explain.

Calculate taxable income and income tax payable, and prepare journal entries for each year-end.

Prepare a partial statement of profit and loss for each year, starting with pre-tax accounting earnings.

What amount of deferred income tax would be reported on the 20X6 and 20X7 statements of financial position?

Wang Yee is a manufacturer. The following balances were extracted from his books on 31
January 2010.
$
Inventories (stocks) 1 February 2009

Additional information:
1 Inventories (stocks) at 31 January 2010 were valued as follows:

Raw materials 16 250

Work in progress 18 780

Finished goods 32 500

2 At 31 January 2010

Direct factory wages, $1 120, were accrued.

Sundry office expenses, $630, were prepaid.

3 Rent is to be apportioned on the basis of area occupied. Three fifths of the area is occupied by

the factory and two fifths by the offices.

4 Depreciation is charged on plant and machinery at 20% per annum using the diminishing

(reducing) balance method.

5 Office equipment is depreciated using the straight-line method at 20% on cost. Office equipment, $24 000, was purchased on 31 July 2006.

Additional office equipment, $6 000, was purchased on 30 September 2009.

No other changes in non-current (fixed) assets occurred in the year ended 31 January 2010.

Depreciation is calculated for the time assets are held in the business.

6 The provision for doubtful debts is to be maintained at 4% of trade receivables (debtors).

REQUIRED

(a) Prepare the manufacturing account of Wang Yee for the year ended 31 January 2010. Show

clearly the cost of raw materials consumed, prime cost and cost of production.

(b) Prepare the income statement (trading and profit and loss accounts) of Wang Yee for the year

ended 31 January 2010.

(c) Prepare the Statement of financial position of Wang Yee at 31 January 2010.

Omega Distributing Company

Omega Distributing Company specializes in supplying fragrances to retail outlets such as Goody’s and JCPenney. One of its products is Smelgud. Smelgud has generated significant revenue in the past, however top management is concerned as to whether its pricing and advertising policies are optimal for the demand. Partnering with some of its retail outlets Omega has undertaken to conduct a statistical study of consumer demand for Smelgud.

Omega’s analyst believe that the principal determinant of consumer demand for Smelgud are(1) the price of Smelgud, (2) the price of Antistink (a competing fragrance) and (3) advertising expenditures. The following data were collected from a group of representative outlets .

In the table the price of Antistink is the retail price charged customers while the price of Smelgud is the wholesale price charged by Omega to its customers. Since the retailers use markup pricing omega s price represents what retail customers pay for Smelgud.

It is hypothesized that a linear demand function like the following would describe the relation between quantity sold and price of Smelgud and the other independent variables.

Q = Bo + B1(Ps) + B2(Pa)+ B3(A)  

You have been hired by Omega after recent graduation from Missouri Valley College at a salary in the 95th percentile of new graduate hires. Because of your understanding of Economics and how to apply Statistics, one of your first assignments is to analyze this data and determine a demand function of the form shown. You have determined that once you have good estimates of the coefficients on the independent variables you could calculate various elasticity measures which could show insights into pricing, competition and advertising.    

You will need to report your findings to your immediate supervisor, Duncan Haynes. Mr. Haynes background is in Art History and Chemistry, he was promoted out of the the product inception area. Hence, your report will need to explain what you have done and what your findings mean in detail. You will make recommendations and defend them.    

Ariel Tax Services prepares tax returns for individual and corporate clients. As the company has gradually expanded to 10 offices, the founder, Max Jacobs, has begun to feel as though he is losing control of operations. In response to this concern, he has decided to implement a performance measurement system that will help control current operations and facilitate his plans of expanding to 20 offices.

Jacobs describes the keys to the success of his business as follows:

“Our only real asset is our people. We must keep our employees highly motivated and we must hire the 'cream of the crop.' Interestingly, employee morale and recruiting success are both driven by the same two factors—compensation and career advancement. In other words, providing superior compensation relative to the industry average coupled with fast-track career advancement opportunities keeps morale high and makes us a very attractive place to work. It drives a high rate of job offer acceptances relative to job offers tendered.”

“Hiring highly qualified people and keeping them energized ensures operational success, which in our business is a function of productivity, efficiency, and effectiveness. Productivity boils down to employees being billable rather than idle. Efficiency relates to the time required to complete a tax return. Finally, effectiveness is critical to our business in the sense that we cannot tolerate errors. Completing a tax return quickly is meaningless if the return contains errors.”

“Our growth depends on acquiring new customers through word-of-mouth from satisfied repeat customers. We believe that our customers come back year after year because they value error-free, timely, and courteous tax return preparation. Common courtesy is an important aspect of our business! We call it service quality, and it all ties back to employee morale in the sense that happy employees treat their clients with care and concern.”

“While sales growth is obviously important to our future plans, growth without a corresponding increase in profitability is useless. Therefore, we understand that increasing our profit margin is a function of cost-efficiency as well as sales growth. Given that payroll is our biggest expense, we must maintain an optimal balance between staffing levels and the revenue being generated. As I alluded to earlier, the key to maintaining this balance is employee productivity. If we can achieve cost-efficient sales growth, we should eventually have 20 profitable offices!”

Required:

Create a balanced scorecard for Ariel Tax Services. Link your scorecard measures using the framework from Exhibit 9–5. Indicate whether each measure is expected to increase or decrease.

1. The U.S. Department of Transportation reported that during November, 83.4% of Southwest
Airlines’ flights, 75.1% of US Airways’ flights, and 70.1% of JetBlue’s flights arrived on time (USA
Today, January 4, 2007). Assume that this on-time performance is applicable for flights arriving at
concourse A of the Rochester International Airport, and that 40% of the arrivals at concourse Aare
Southwest Airlines flights, 35% are US Airways flights, and 25% are JetBlue flights.
a. An announcement has just been made that Flight 1424 will be arriving at gate in concourse A.
What is the most likely airline for this arrival?
c. What is the probability that Flight 1424 will arrive on time?
d. Suppose that an announcement is made saying that Flight 1424 will be arriving late. What is the
most likely airline for this arrival? What is the least likely airline?

2. In San Francisco, 30% of workers take public transportation daily (USA Today, December 21, 2005).
a. In a sample of 10 workers, what is the probability that exactly three workers take public
transportation daily?
b. In a sample of 10 workers, what is the probability that at least three workers take public
transportation daily?

3. Auniversity found that 20% of its students withdraw without completing the introductory statistics
course. Assume that 20 students registered for the course.
a. Compute the probability that two or fewer will withdraw.
b. Compute the probability that exactly four will withdraw.
c. Compute the probability that more than three will withdraw.
d. Compute the expected number of withdrawals.

4. Phone calls arrive at the rate of 48 per hour at the reservation desk for Regional Airways.
a. Compute the probability of receiving three calls in a 5-minute interval of time.
b. Compute the probability of receiving exactly 10 calls in 15 minutes

.
5. More than 50 million guests stay at bed and breakfasts (B&Bs) each year. The website for the Bed
and Breakfast Inns of North America, which averages seven visitors per minute, enables many
B&Bs to attract guests (Time, September 2001).
a. Compute the probability of no website visitors in a one-minute period.
b. Compute the probability of two or more website visitors in a one-minute period.

6. In a survey conducted by the Gallup Organization, respondents were asked, “What is your favorite
sport to watch?” Football and basketball ranked number one and two in terms of preference
(Gallup website, January 3, 2004). Assume that in a group of 10 individuals, seven prefer football
and three prefer basketball. A random sample of three of these individuals is selected.
a. What is the probability that exactly two prefer football?
b. What is the probability that the majority (either two or three) prefer football?

Inventory Case

JMI Industries (“JMI” or “the Company”), a publicly traded company, manufactures and sells coaxial and fiber optical cable. JMI is contemplating two separate transactions for which it is evaluating the appropriate inventory and revenue recognition.

Transaction 1: BigWire, a customer of JMI,has entered into a binding written agreement to purchase 1,000 feet of fiber optic cable for $3.00 per foot. Because BigWire is constructing a new warehouse, it is unable to take delivery of the cable and has requested in writing that JMI store the cable in its warehouse until construction of BigWire's warehouse is completed. BigWire's warehouse will be completed three months from the time of purchase, at which time BigWire is required to take delivery of the cable. JMI stores fiber optic cable in 10,000-foot spools (spools of cable are considered finished goods and ready for shipment). JMI will not physically segregate the cable that BigWire will purchase; rather, the Company will designate the quantity in its inventory tracking system as "sold," thereby preventing the use of the cable to fulfill other customer orders. In other words, JMI will "virtually" segregate the inventory.

JMI and its auditors have concluded the following with respect to the arrangement with BigWire:

• Risks of ownership of the cable have passed to BigWire.

• BigWire has a substantial business purpose for requesting JMI to hold the cable at its warehouse (waiting on completion of the warehouse).

• JMI does not have additional performance obligations with respect to the cable purchased by BigWire.

JMI has concluded that it is appropriate to recognize revenue for Transaction 1 before the date on which BigWire takes delivery of the 1,000 feet of 18 AWG coaxial cable.

Transaction 2: Grant Telecom, a customer of JMI, entered into a binding written agreement to purchase 1,500 feet of fiber optic cable for $2.95 per foot. Grant Telecom's shipping terms are freight on board (FOB) shipping point, and JMI collected payment before the order shipped. Title transfers upon delivery to the carrier, and Grant Telecom will insure the product while it is in transit. Instead of using a third-party shipper (e.g., FedEx, UPS), JMI has elected to use its own logistics subsidiary, JMI Transit, to deliver the cable to Grant Telecom (JMI Industries owns 100 percent of JMI Transit). JMI Transit provides an array of shipping services to third-party customers outside the cable industry. Only 2 percent of JMI Transit's shipping revenue is expected to be derived from transactions with JMI in the current year.

Required:

Transaction 1

• Is it appropriate for JMI to recognize revenue before the date on which BigWire takes delivery of the 1,000 feet of 18 AWG coaxial cable? ( take a look at ASC 606-10-55-83)

• If JMI and BigWire’s fiscal years end after the agreement is signed but before the cable is delivered, on whose balance sheet should the cable be shown?

Transaction 2

• Is it appropriate for JMI to recognize revenue upon transfer of the inventory to the carrier?

• Would your answer change if 80% of JMI Transit’s shipping revenue came from transactions with JMI?

You should use the GAAP Codification database to answer these questions (and no other sources should be needed). To access the GAAP codification database, go to aaahq.org/FASB-GASB, and use the following access credentials:

Username:         AAA52009

Password:           7S8FrRw

Cite the section number of any relevant sections of the codification in your answer. Treat this assignment as though it were a research request in a professional setting.

You meet with Elizabeth and discuss the expected revenue and costs related to the Cookie Shop that she is planning on opening. Elizabeth has done her marketing research of customer demand and what customers are willing to pay for a dozen cookies. Elizabeth provides the Revenue and Cost information below and states you that she thinks that the shop will only be able to sell 1,000 dozen of cookies in a month based on this data.

Quantity of cookies sold (in dozens) 1,000

Selling price for a dozen cookies $17.50

Variable Cost to bake a dozen cookies $9.75

Monthly Fixed Expenses of the shop

Rent for the shop $3,000.00

Lease cost for baking equipment $1,200.00

Utilities and Maintenance $500.00

Wages paid to 1 part-time employee $1,000.00

Total Monthly Fixed Expenses $5,700.00

Elizabeth said that she will be quitting her job to work full-time in the Cookie Shop. She says that her monthly living expenses total $4,000 per month (including payments for her college loans, car payment, apartment rent and food and other living expenses). So she needs you to help her determine how many dozens of cookies will she have to sell in a month to have the Cookie Shop make $4,000 in Net income.

Monthly Target Profit $4,000.00

You discuss with Elizabeth the following 3 options that could be implemented

Option # 1 Increase the selling price of a dozen cookies by 20%. This will casue a 10% decrease in the monthly unit (dozen) sales.

# 2 Increase the selling price of a dozen cookies by 20% and spend $750 monthly for a social media marketing campaign. This is expected to keep the monthly unit sales at 1,000 dozen

# 3 Move home and live with her parents and save $2,000 per month in living expenses. This would allow the monthly target income to be reduced from $4,000 to $2,000. Use the original revenue and cost assumptions.