Category: Business and Management : Accounting

Description
You will create this assignment following the Assignment Detail instructions below.
Review the tutorial How to Submit an Individual Project.
Assignment Details
A company’s operating cycle is the time frame from when a company buys materials until it obtains cash for the sale of an item.
Consider a business that you have worked for or you are familiar with, or utilize a fictitious company. The supervisor would like an analysis of the efficiency of the operations. Prepare a minimum 15-slide PowerPoint presentation and include the following:
Draw an operating cycle of the company (e.g., you could use SmartArt in PowerPoint).
Predict the length of the cash conversion cycle within that cycle.
Determine the working capital needs of the company.
Discuss the need for liquidity to conduct business.
Show how efficiency ratios can be used to determine the best way to conduct the operations of the company.
Provide recommendations to improve efficiency.
Submitting your assignment in APA format means, at a minimum, you will need the following:
Title slide: Remember the running head. The title should be in all capitals.
Length: 15 slides minimum
Body slides: This begins on the slide following the title slide and must be double-spaced (be careful not to triple- or quadruple-space between paragraphs). The typeface should be 12-pt. Times Roman or 12-pt. Courier in regular black type. Do not use color, bold type, or italics, except as required for APA-level headings and references. The deliverable length of the body of your presentation for this assignment is 15 slides. In-body academic citations to support your decisions and analysis are required. A variety of academic sources is encouraged.
Reference slide: References that align with your in-body academic sources are listed on the final slide of your presentation. The references must be in APA format using appropriate spacing, hanging indent, italics, and uppercase and lowercase usage as appropriate for the type of resource used. Remember, the Reference slide is not a bibliography but a further listing of the abbreviated in-body citations used in the paper. Every referenced item must have a corresponding in-body citation.

The controller was extremely impressed in your proficiency with the financials and sent your work over to the chief financial officer (CFO). Because of your attention to detail and understanding of the Generally Accepted Accounting Principles (GAAP), the CFO asks you to review the note disclosures related to deferred taxes for the organization.
Once your review is complete, the CFO asked you to address the following related to the organization’s deferred tax footnote:
What are the main temporary and permanent differences discussed in the entity’s footnote and how are they classified in the balance sheet?
Why is the classification of the differences in the balance sheet the appropriate treatment?

 There are 3 discussion questions and various alternatives for each discussion. Please choose the most appropriate alternative for each discussion and support your choice by stating the applicable pronouncements and explaining why they are appropriate and applicable.
 
Discussion 1 — Accounting for year-end financial statements December 31, 2007
 
For the year-end December 31, 2007, financial statements, what amount should M International (“M”) record as a liability?
 
Accounting Alternatives
 
Alternative 1 — Recognize and disclose $20 million.
 
M should record $20 million as an accrued liability for the loss contingency and disclose the nature of this liability within notes to the financial statements. This is in accordance with guidance under ASC 450-20-25-2, which states, in part:
 
An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
 
a.      Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.
 
b.     The amount of loss can be reasonably estimated.
c.      After considering the above guidance, given that the loss is probable of occurring and is estimable, it is prudent, reasonable, and conservative of M to record an accrual at the high end of the $15 million to $20 million range as a loss contingency. Disclosure of the nature and amount of the liability should follow disclosure requirements under ASC 450- 20-50.
 
Alternative 2 — Recognize $17 million and disclose $3 million.
 
Consistent with the guidance under ASC 450-20-25-2 quoted above, M should recognize an accrued liability for the loss contingency in its December 31, 2007 financial statements. An amount of $17 million, being the most likely amount in the range, should be accrued as the amount of the loss contingency and recorded in the financial statements, and disclosure should be made for the difference between the most likely amount of $17 million and maximum loss amount of $20 million.
 
Alternative 3 — Recognize $15 million and disclose $5 million.
 
Consistent with the guidance under ASC 450-20-25-2 quoted above, M should recognize
an accrued liability for the loss contingency in its December 31, 2007 financial statements. Given that the loss is probable of occurring and is estimable, it is prudent and reasonable for M to record an accrual at the low end of the $15 million to $20 million range as a loss contingency. Disclosure of the nature and amount of the liability should follow disclosure requirements under ASC 450-20-50.
 
Solution — Choose the Most Appropriate Alternative and Give Supporting Evidence for Your Choice Providing the Correct Pronouncement Guidance
 
Discussion 2 — Accounting for year-end financial statements December 31, 2009
 
For the year-end December 31, 2009, financial statements, should M adjust its liability? If so, what amount should be recorded? Should the amount of the adjustment, if any, be considered a 2009 event or a prior period adjustment?
 
Accounting Alternatives
 
Alternative 1 — Yes. Accrue an incremental liability of $1.5 million for the year ended December 31, 2009.
 
The jury reached a verdict against M in September 2009. This verdict required M to pay W Inc. (“W,” a competitor of M) $18.5 million. This contingency is now probable, and the amount of the contingency of $18.5 million is reasonably estimable (as the amount was determined by the jury as the outcome of the litigation). Thus, given that M had already accrued $17 million in a prior year, it should record an additional $1.5 million in the current period based on the change in circumstances determined by the verdict of the jury, which occurred during 2009.
Alternative 2 — Yes. Accrue an incremental liability of $1.5 million as a prior period adjustment.
 
This alternative is very similar to the above view; however, using this alternative, will have to restate its prior two years of financial statements. The 2007 financial statements would be restated to change the income statement charge and the amount of the accrued liability to $18.5 million. The 2008 financial statements would be restated to increase the amount of the accrued liability to $18.5 million.
 
Solution 2 – Choose the Most Appropriate Alternative and Give Supporting Evidence for Your Choice Providing the Correct Pronouncement Guidance
 
Discussion 3 — Accounting for events after verdict overturned on appeal
 
Should M record the reduction of the previously recorded loss contingency in 2010 (upon the Court of Appeals overturning the verdict of the jury) or 2011 (once the appellate judges declined W’s petition for a re-hearing)?
 
Accounting Alternatives
 
Alternative 1 — Reduce the amount of the loss contingency in 2011 upon the appellate judge’s decision to decline W’s petition for a re-hearing.
 
Since there is a possibility that the Court of Appeals verdict can be overturned through a subsequent re-hearing following the appellate judge’s decision to decline W’s petition, M should wait to reverse the previously accrued loss contingency liability following the re-hearing.
 
Alternative 2 — Reduce the amount of loss contingency in 2010 upon the Court of Appeals overturning the verdict of the jury.
 
The Company should reduce the amount of its loss contingency given the ruling reached by the Court of Appeals to overturn the verdict, since the loss contingency is no longer probable. Further, M should treat the reduction in the amount of the loss contingency as a change in estimate.
 
Solution 3 – Choose the Most Appropriate Alternative and Give Supporting Evidence for Your Choice Providing the Correct Pronouncement Guidance
 
 
 

Part 1. Explain in 3-4 sentences In what ways does the balance sheet reflect the health of a business, and in what ways does it not?
Part 2. In 2-3 sentences respond to this discussion   A balance sheet can help reflect the health of a business because at any point it can show you your assets, liabilities, and stockholders’ equity. This can help you see where your company is in relation to the financial goals that are set forth for it. You can also see if there is a discrepancy between your company’s cash flow from operations as well as income. This can reduce the risk of any potential setbacks that the business may have.