Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
- a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
- b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
- c. Delay the year-end closing a few days into January of the next year so that some of the next year’s sales are included in this year’s sales.
- d. Reduce the estimated
Bad Debts Expense from 3% of Sales Revenue to 2%, given the company’s continued strong performance. - e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
- 1. Which of these suggested strategies are inconsistent with IMA standards?
- 2. How might these inconsistencies affect the company’s creditors and stockholders?
- 3. What should Borzi do if Busch insists that she follow all of these suggestions?
Want to see the full answer?
Check out a sample textbook solutionChapter 16 Solutions
EP FINANCIAL+MANAGERIAL ACCT. >CUSTOM<
Additional Business Textbook Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
Auditing and Assurance Services (16th Edition)
Horngren's Financial & Managerial Accounting, The Financial Chapters (6th Edition)
Principles of Accounting Volume 2
Intermediate Accounting
Advanced Financial Accounting
- Nicole Martins is the controller at UMC Corp., a publicly-traded manufacturing company. Last year, UMC had annual sales revenue of $15 million. The first quarter of this year just ended, and Nicole needs to prepare a trial balance so she can prepare the quarterly financial statements. However, the trial balance is out of balance by $750 (credits exceed debits). Nicole is running out of time aside as the report is due today! Therefore, she decides to balance by plugging the $750 into the account called depreciation expense account. She chooses this account because it is one that is adjusted during the year-end. Three basic principles of accrual accounting are that revenue must be recognized in the period it is earned, expenses must be recorded in the period they support revenue and are generated, and debits equal credits. 1) Does this violate any of these basic principles? If so, which ones? 2) When the trial balance does not balance, what might this indicate? 3) Explain the ethical…arrow_forwardEthics and the Manager M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that wherever possible, expenditures should be postponed to the new year—including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs that are…arrow_forwardApplying ethical standards, management accountability Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: Persuade suppliers to postpone billing $13,000 in invoices until January 1. Record as sales $115,000 in certain software awaiting sale that is held in a public warehouse. Delay the year-end closing a few days into January of the next year so…arrow_forward
- Applying ethical standards, management accountability Natalia Wallace is the new controller for Smart Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, James Cauvet, the company president, asks Wallace how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 13% for the first time in the company’s five-year history. Cauvet explains that financial analysts have again predicted a 13% earnings growth for the company and that he does not intend to disappoint them. He suggests that Wallace talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: a. Persuade suppliers to postpone billing $13,000 in invoices until January 1. b. Record as sales $115,000 in certain software awaiting sale that is held in a public warehouse. c. Delay the year-end closing a few days into January of the next…arrow_forwardAnton Blair is the manager of a medium-sized company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year-end adjustments. One of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts. 1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet? 2. Do you believe Blair's recommendation to adjust the allowance for doubtful accounts is within his rights as a manager, or do you believe this action is an ethics violation? Justify your response. 3. What type of internal control(s) might be useful for this company in overseeing the manager's recommendations for accounting changes?arrow_forwardAnton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year-end adjustments. One of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts. Required 1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet? 2. Do you believe Blair’s recommendation to adjust the allowance for doubtful accounts is within his rights as manager, or do you believe this action is an ethics violation? Justify your response. 3. What type of internal control(s) might be useful for this company in overseeing the manager’s recommendations for accounting changes?arrow_forward
- Applying ethical standards, management accountability Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talks to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: Persuade suppliers to postpone billing $18,000 in invoices until January 1. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse. Delay the year-end closing a few days into January of the next year so that some of…arrow_forwardApplying ethical standards, management accountability Ava Borzi is the new controller for Halo Software, Inc. which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies: a. Persuade suppliers to postpone billing $18,000 in invoices until January 1. b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse. c. Delay the year-end closing a few days into January of the next year so that…arrow_forwardIn June 2019, Tech Mart, appointed Corie Barry as the new CEO. After having just two CEOs in its firs 43 years of operations (Richard Schulze and his successor, Brad Anderson), Tech Mart went through three top leaders in a six-month period in 2012. Brian Dunn resigned in April amidst a personal scandal after just three years at the helm. At the same time, founder Schulze stepped down from his role as chairman of the board and tried to reassert his control via a bid to take the company private. Hubert Joly assumed the lead position from interim CEO George Mikan in August 2012, and he immediately sought to turnaround Tech Mart and return it to profitability. Joly picked his successor in 2019, Corie Barry, who is the fifth CEO and first female leader of Tech Mart. Joly remains as chairman and Barryhas become one of the youngest CEO of a S&P500 company. After appointing Hubert Joly as CEO in 2012, Tech Mart experienced an impressive turnaround, and itsurvived a shakeout of traditional…arrow_forward
- George Costanza is an accountant for Vandelay Industries, a footwear and apparel company. The company's revenue and net income have increased by more than 100% over the past three years. During the same period, George and his colleagues in the Accounting Department have not received a raise or salary increase. Frustrated by not receiving a raise while the company has thrived, George has begun submitting expense reimbursements for personal purchases. George has a good relationship with his supervisor, and the supervisor simply "signs off" on George's expense reimbursements. George suspects that his supervisor knows that he is submitting personal expenses for reimbursement and is "looking the other way" because George has not received a raise in the past three years. Are George and his supervisor acting in an ethical manner? Why or why not?arrow_forwardEdward L. Vincent is CFO of Energy Resources, Inc. The company specializes in the exploration and development of natural gas. It's near year-end, and Edward is feeling terrific. Natural gas prices have risen throughout the year, and Energy Resources is set to report record-breaking performance that will greatly exceed analysts' expectations. However, during an executive meeting this morning, management agreed to "tone down" profits due to concerns that reporting excess profits could encourage additional government regulations in the industry, hindering future profitability. Edward decides to adjust the estimated service life of development equipment from 10 years to 6 years. He also plans to adjust estimated residual values on development equipment to zero as it is nearly impossible to accurately estimate residual values on equipment like this anyway. Required: 1.Explain how the adjustment of estimated service life from 10 years to 6 years will affect depreciation…arrow_forwardNewtake Records Ltd owns three shops selling rare jazz and classical recordings to serious collectors. At the beginning of June, the business had an overdraft of £35,000 and the bank has asked for this to be eliminated by the end of November of the same year. As a result, the directors of the business have recently decided to review their plans for the next six months in order to comply with this requirement.The following forecast information was prepared for the business some months earlier: May June July August September October November £000 £000 £000 £000 £000 £000 £000 Expected Sales 180 230 320 250 140 120 110 Purchases 135 180 142 94 75 66 57 Admin. expenses 52 55 56 53 48 46 45 Selling expenses 22 24 28 26 21 19 18 Tax payment 22 Finance payments 5 5 5 5 5 5 5 Shop refurbishment - - 14 18 6 - -…arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning