Session 3 Solutions, Part 1
GM4106 Midterm Take-Home Cases
Read the case, Merrimack Tractors and Mowers, Inc: LIFO or FIFO? and prepare a brief memo and spreadsheet supplement for the following items:
1. Prepare an “as if” income statement for 2008 assuming (1) no change in accounting policy and (2) sales of 10,000 mower units each quarter at a price of $2,000 per unit with Selling, General and Administrative costs the same as they were in 2008.
2. How would this change if the unit sales pattern was 10,000 units, 5,000 units, 20,000 units, and 5,000 units in the four quarters? Why?
3. Assume 10,000 units are sold each quarter in 2008. If the company adopted
FIFO on January 1, 2008, how would this affect the financial statements?
4. In the “as if” income statements prepared by James Colburn, the costs of mower units and transportation were rising for 2007 and 2008. How would the company’s deliberations be affected if inventory purchase prices and transportation costs had been stable or falling over the two-year period?
Read the case, Biovail Corporation—Revenue Recognition and FOB Sales
Accounting, the press release, and the excerpted items below and answer the following questions. http://www.businesswire.com/news/home/20031003005229/en/Biovail-Guidance2003-Quarter-Results 1. Assume the solution to item 1 in the case is approximately 20%. Prepare a brief memo that answers items 2 and 3.
2. Download Biovail’s 6-K statements for Q2 and Q3 of 2003 from the Valeant
Pharmaceuticals website (Biovail merged with Valeant). What do you observe regarding the firm’s revenue recognition and receivables disclosures? 1
An excerpt from the Securities and Exchange Commission’s Staff Accounting
Bulletin 104 is included on this page. Refer to the relevant “bill and hold” sections in the Canadian and US documents and discuss the bill and hold arrangement:
http://www.osc.gov.on.ca/documents/en/ProceedingsSET/set_20090210_crombieb.pdf
Read the case, Merrimack Tractors and Mowers, Inc: LIFO or FIFO? and prepare a brief memo and spreadsheet supplement for the following items:
1. Prepare an “as if” income statement for 2008 assuming (1) no change in accounting policy and (2) sales of 10,000 mower units each quarter at a price of $2,000 per unit with Selling, General and Administrative costs the same as they were in 2008.
2. How would this change if the unit sales pattern was 10,000 units, 5,000 units, 20,000 units, and 5,000 units in the four quarters? Why?
3. Assume 10,000 units are sold each quarter in 2008. If the company adopted
FIFO on January 1, 2008, how would this affect the financial statements?
4. In the “as if” income statements prepared by James Colburn, the costs of mower units and transportation were rising for 2007 and 2008. How would the company’s deliberations be affected if inventory purchase prices and transportation costs had been stable or falling over the two-year period?
Read the case, Biovail Corporation—Revenue Recognition and FOB Sales
Accounting, the press release, and the excerpted items below and answer the following questions. http://www.businesswire.com/news/home/20031003005229/en/Biovail-Guidance2003-Quarter-Results 1. Assume the solution to item 1 in the case is approximately 20%. Prepare a brief memo that answers items 2 and 3.
2. Download Biovail’s 6-K statements for Q2 and Q3 of 2003 from the Valeant
Pharmaceuticals website (Biovail merged with Valeant). What do you observe regarding the firm’s revenue recognition and receivables disclosures? 1
An excerpt from the Securities and Exchange Commission’s Staff Accounting
Bulletin 104 is included on this page. Refer to the relevant “bill and hold” sections in the Canadian and US documents and discuss the bill and hold arrangement:
http://www.osc.gov.on.ca/documents/en/ProceedingsSET/set_20090210_crombieb.pdf