B&L Case Study

GOLD TEAM 4 | ACC 401 | Assignment 2 – Analysis of the Financial Statements for J. P. Morgan Chase and Citigroup | | Evan Aloe Joohyung Han Takahito Fukui Bhadra Menon | 10/3/2011 |

|

ACC401 Financial Accounting HW#1
Q1.
Dr Accounts Receivable $ 22 M Cr Net Sales $ 22 M
Dr Cost of Goods Sold $ 9.9 M (COGS to net sales ratio: 45% and the additional net sales at the end of 1993 = $22 million) Cr Inventories $ 9.9 M
Q2.
B&L’s accounting treatment of the product shipment arising from its new sales strategy is correct. Our opinion is based on the revenue recognition of the accounting rules.
There are two conditions for revenue recognition. One is completion of the earning process, which means that the seller’s obligation to provide goods or services must be performed, or almost performed. Another is the receipt of assets from customers - cash should be collected or cash collectability reasonably guaranteed.
According to the article, B&L had already delivered its products, contact lenses to 30 of its distributers. So, it completed its obligation to provide goods and services. Additionally, the inventories are in the distributors’ warehouses and not in B&L’s warehouses. So, the first condition of revenue