Assignment #2: The accounting principles
Fall 2018 ACC 207
Due Tuesday,10/2/18
Answer the following 8 short answer questions. Make sure to answer each question fully. Responses will be graded for thoughtfulness and rationale (a yes/no response is not sufficient). Each question is worth 1 point except for questions #2 and #8 which are worth two points, for an assignment total of 10 points. This is an individual assignment – ensure all work is your own as I will be using a software program to look for plagiarism.
Situation #1
Stabler and Benson is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Stabler and Benson introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming sales success.
The early sales success of the Correct-O-Penhas CharlotteSmith, the manager of the New Products division, worried. She isconcerned that quality problems willbegin occurring, since the longevity of the pen and stability of the correction fluid formulation havenot been tested. If quality problems arise, the company will have to incur significant future costs. Because sales personnel bonuses are based on a percentage of profits, she is also concerned that this period’s bonuses may be inflated if sales personnel aggressively promote a product that laterfails. She prefersto complete testing of the pen first, so that more confidence canbe placed in the results before including this pen in the sales bonus program.Top management, however, declined additionaltests.
Ms. Smithhasinstructed you, the accountant, not to proratepayroll taxes andrent expense which relate to the rest of the year. Instead of spreading those costs across the year, you have beenasked to show them as current expenses in total now. (Thus recording all expenses in the current period instead of spreading across the remainder of the year in the periods they relate to). In this way, the new product would appear to be only slightly profitable in the current period.
Required:
- Is the accounting proposed by Ms. Smith appropriate under the accounting principles we have been discussing? What specific accounting principle is or is not being followed? Explain your answer in detail.
- Describe at least three alternatives that you as an accounting employeewould have in this situation.
- Indicate which alternative is best. Support your answer in detail.
Answers:
1.
2.
a.
b.
c.
3.
Situation #2
- SusanGrey believes revenues from credit sales may be earned before they are collected in cash. Do you agree? Explain in detail why you agree or why you do not.
Answer:
Situation #3
Pillar Corporation manufactures electronic components for use in many consumer products. Their raw materials are purchased literally from all over the world. Depending on the country involved, purchase terms vary widely. Some suppliers, for example, require full prepayment up front, while others are content to receive payment within six months of receipt of the goods.
Because of this situation, Pillar never closes its books until at least ten days after month end. In this way, it can sort out ownership of goods in transit, and document which goods were received by month end, and which were not.
KathrynRoades, a new accountant, was asked to record about $50,000 in inventory as having been purchasedin November. She disagreed, arguingthat the shipping documents clearly showed that the goods were actually received on the 8th of December. Her boss, busy with month-end reports, curtly toldKathryn to check the shipping terms. She did so, and found the notation “FOB (free on board) shipper’s dock” on the document. She hadn’t seen that particular notation before, but she reasoned that if the selling company considered it shipped when it reached the selling company’s dock, Pillar should consider it received when it reached Pillar’s dock. She recorded the purchase as a December purchase, when received at Pillar’s dock.
Required:
- Why are accountants concerned with the timing in the recording of purchases? Be specific.
- Was the sale recorded in the proper period? Why or why not?
- Was there a violation of ethical standards here? Explain.
Answers:
Situation #4
AnnieLong and BetsyJones, two salespersons in adjoining territories, regularly compete for bonuses. During the last month, their dollar volume of sales, on which the bonuses are based, was nearly equal. On May 30, 2017, each made a large sale. Both orders were shipped on May 31, 2017, the last day of the month, and both were received by the customers on June 5, 2017. Annie’s sale was FOB shipping point (ownership passes to buyer at time of shipping), and Betsy’s was FOB destination (ownership passes to buyer at time of receipt). The printed policy of the company states that sales “count” for purposes of calculating bonuses on the date that ownership passes to the purchaser. Annie’s sale was therefore counted in her May monthly total of sales while Betsy’s sale was not. Betsy is quite upset. She has asked you to just include it, or to take Annie’s off as well. She also has told you that you are being unethical for allowing Annie to get a bonus just for choosing a particular shipping method.
- As the accounting manager write a memo to Betsy on June 15, 2017, and explain your position.
Answer:
M E M O
TO:
FROM:
RE:
DATE:
Submission Instructions:
A single MS-Word document containing your answers to the eight numbered questions should be submitted via the Isidore “Assignments” tool.
