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P18-30A Lee Reinhardt is the new controller for Night Software, Inc., which develops and sells education software

P18-30A Lee Reinhardt is the new controller for Night Software, Inc., which develops and sells education software
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Solution Guide / Answer Key:

ACCOUNTING
Accounting 7th Edition by Horngren, Harrison and Bamber
P18-30A
Lee Reinhardt is the new controller for Night Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, Richard Oliver, the company president, asks Reinhardt how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 15% for the first time in the company’s five-year history. Oliver explains that financial analysts have again predicted a 15% earnings growth for the company and that he does not intend to disappoint them. He suggests that Reinhardt 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 until January 1.
b. Record as sales 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 next year’s sales are included as this year’s sales.
d. Reduce the allowance for bad debts (and bad debts expense), given the company’s continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.

Which of these suggested strategies are inconsistent with IMA standards? What should Reinhardt do if Oliver insists that she follow all of these suggestions? (pp. 915–916)

 

FILE: MS WORD

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