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Chapter 16: 7RQ (page 884)
Describe a merchandising company, and give an example.
The merchandising company sells products that are not produced by them and the examples are Walmart and Aptos.
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List six differences between financial accounting and managerial accounting.
Applying ethical standards
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鈥檚 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鈥檚 sales are included in this year鈥檚 sales.
d. Reduce the estimated Bad Debts Expense from 3% of Sales Revenue to 2%, given the company鈥檚 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鈥檚 creditors and stockholders?
3. What should Borzi do if Busch insists that she follow all of these suggestions?
Question:Applying ethical standards
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鈥檚 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 year so that some of the next year鈥檚 sales are included in this year鈥檚 sales.
d. Reduce the estimated Bad Debts Expense from 5% of Sales Revenue to 3%, given the company鈥檚 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鈥檚 creditors and stockholders?
3. What should Wallace do if Cauvet insists that she follow all of these suggestions?
The Institute of Management Accountants鈥� Statement of Ethical Professional Practice requires managerial accountants to meet standards regarding competence, confidentiality, integrity, and credibility. Consider the following situations. Which standard(s) is(are) violated in each situation?
c. At a company-paid conference on e-commerce, you skip the afternoon session and go sightseeing
Identify the following characteristics as primarily related to financial accounting (FA) or managerial accounting (MA):
3. Is not required to follow GAAP.
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