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f.
December 31, 2015
January 1, 2015
PROBLEM 7.8B
CIAVARELLA CORPORATION
(concluded)
Ciavarella Corporation is slightly worse
than the industry average.
If the industry average is 60 days,
40 Minutes, Strong
a.
CASE 7.2
ROCK, INC.
It is logical and predictable that the Double Zero policy—which calls for no down payment
and allows customers 12 months to pay—will cause an increase in sales. It also is predictable
that implementation of the Double Zero plan will cause cash receipts from customers to
and expenses. The bookkeeper’s schedule indicates that they do, and that net income has
more than doubled (from $10,000 per month to $25,000 per month). However, the company
uses the direct write-off method of accounting for uncollectible accounts, which delays the
recognition of uncollectible accounts expense to future periods. Therefore, the bookkeeper’s
measurement of net income in the latest month ignores entirely what may be a major expense
d.
with plans similar to Double Zero? If so, Rock’s sales may decline toward former levels.
Without a sustainable increase in sales, the Double Zero plan clearly is less advantageous
than the 30-day credit policy.
Another factor to consider is whether Rock will, in fact, be able to survive the temporary
decline in monthly cash receipts which accompanies the new, liberal credit terms.
CASE 7.2
ROCK, INC.
(
concluded
)
The Double Zero receivables generate no revenue after the date of sale. Hence, they represent
resources that are “tied up” for up to 12 months without earning any return. As the company
uses the direct write-off method of accounting for uncollectible accounts, its receivables are
a. 1.
2.
There is certainly nothing improper or unethical about offering customers a discount for
prompt payment, but an interesting accounting issue arises. A 10% discount is quite
substantial, and many customers would likely take advantage of it. This affects the net
The need for an allowance for doubtful accounts is not based upon whether these
ETHICS, FRAUD & CORPORATE GOVERNANC
E
7.
CASE 7.3
WINDOW DRESSING (continued)
Although these funds might actually be included in both year-end bank statements, they
are not really available to the company in both bank accounts. Thus, this check should be
included as an outstanding check in the year-end bank reconciliation of the account upon
Unless they clearly are told otherwise, users of financial statements reasonably may
assume that financial statements are based upon GAAP. If Affections departs from
GAAP and shows its inventory at current sales value, it must take appropriate steps to
make the users of the statements fully aware of this departure from GAAP.
No time estimate, Medium
This assignment is based upon financial information that is continually updated. Thus, we are
BANKRATE.COM
CASE 7.4
INTERNET
