• February 6th, 2017

Accounting-Case Study

Paper , Order, or Assignment Requirements

 Explain why this case is important.
Case also can be found at the attached PDF file page 257.
Please use the knowledge related to the book. No outside resource allowed.
Thanks.
“Yeah, I know all of the details weren’t completed until
January 2, 2014, but we agreed on the transaction on
December 30, 2013. By my way of reasoning, it’s a continuation
transaction and the $12 million revenue belongs in the
results for 2013.” This comment was made by Carl Land, the
CFO of Family Games, Inc. The company has annual sales of
about $50 million from a variety of manufactured board and
electronic games that are designed for use by the entire family.
However, during the past two years, the company reported
a net loss due to cost-cutting measures that were necessary to
compete with overseas manufacturers and distributors.
Land made the previous comment to Helen Strom, the
controller of Family Games, after Strom had expressed her
concern that because the lawyers did not sign off on the transaction
until January 2, the revenue should not be recorded in
2013. Strom emphasized that the product was not shipped
until January 2 and there was no way of justifying its inclusion
in the previous year’s operating results.
Land felt that Strom was being hypertechnical because
the merchandise had been placed on the carrier (truck) on
December 31, 2013. The items weren’t shipped until January 2
because of the holiday. “Listen, Helen, this comes from
the top,” Land said. “The big boss said we need to have the
$12 million recorded in the results for 2013.”
“I don’t get it,” Helen said to Land. “Why the pressure?”
“The boss wants to increase his performance bonus by
increasing earnings in 2013. Apparently, he lost some money
in Vegas over the Christmas weekend and left a sizable IOU
at the casino,” Land responded.
Helen shook her head in disbelief. She didn’t like the idea
of operating results being manipulated based on the personal
needs of the CEO. She knows that the CEO has a gambling
problem. This sort of thing had happened before. The difference
this time is that it has the prospect of affecting the
reported results, and she is being asked to do something that
she knows is wrong.
“I can’t change the facts,” Helen said.
“All you have to do is backdate the sales invoice to
December 30, when the final agreement was reached,” Land
responded. “As I said before, just think of it as a revenuecontinuation
transaction that started in 2013 and, but for one
minor technicality, should have been recorded in 2014.”
“You’re asking me to ‘cook the books,’ ” Helen said. “I
won’t do it.”
“I hate to play hardball with you, Helen, but the boss
authorized me to tell you he will stop reimbursing you in
the future for child care costs so that your kid can have a
live-in nanny 24-7 unless you are a team player on this issue.
Remember, Helen, this is a one-time request only.” Land said.
Helen was surprised by the threat and dubious of the
“one-time-event” explanation. She sat down and reflected on
the fact that the reimbursement payments for her child care
were $35,000, 35 percent of her annual salary. She is a single
working mother. Helen knows that there is no other way that
she can afford to pay for the full-time care needed by her
autistic son.
Questions
1. Briefly discuss the rules for revenue recognition in accounting
and how they pertain to this case. Does the proposed
handling of the $12 million violate those rules? Be
specific.
2. Assume Carl Land is a CPA and Helen Strom holds the
Certificate in Management Accounting (CMA). What
ethical issues exist for them in this situation? Identify the
stakeholders in this case and Strom’s ethical obligations
to them.
3. To what extent should Helen consider the gambling problems
of her boss in deciding on a course of action? To
what extent should Helen consider her child care situation
and the threatened cutoff of reimbursements? If you were
Helen, what would you do given the directions from Carl
Land. Why?

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