You are the Managerial Accountant. Again, what quantitative and qualitative factors would influence your decision in this scenario
1. You are the Managerial Accountant. Again, what quantitative and qualitative factors would influence your decision in this scenario?
*** You have recently been employed by a large retail chain that sells sporting goods. One of your tasks is to help prepare periodic financial statements for external distribution. The chain’s largest creditor, National Savings & Loan, requires quarterly financial statements, and you are currently working on the statements for the three-month period ending June 30, 2006. During the months of May and June, the company spent $1,200,000 on a large radio and TV advertising campaign. The $1,200,000 included the costs of producing the commercials as well as the radio and TV time purchased to run the commercials. All of the costs were charged to advertising expense.
The company’s chief financial officer (CFO) has asked you to prepare a June 30 adjusting entry to remove the costs from advertising expense and to set up an asset called prepaid advertising that will be expensed in July. The CFO explained that “This advertising campaign has produced significant sales in May and June and I think it will continue to bring in customers through the month of July. By recording the ad costs as an asset, we can match the cost of the advertising with the additional July sales. Besides, if we expense the advertising in May and June, we will show an operating loss on our income statement for the quarter. The bank requires that we continue to show quarterly profits in order to maintain our loan in good standing.”
2. Would you make the ‘adjustment’ and record the advertising expense as an asset?
*** Ford Motor Company is adding over 2,000 new jobs in their Claycomo Assembly Plant. The average wage will be $20 per hour. These wages would have a 6% Individual State Income Tax Rate per year. In addition, there would be a 1% state unemployment tax rate. The Ford plant is in Clay County where they pay $6,000,000 a year in corporate property taxes. New equipment would be added to the plant. This would raise the property taxes another $1,000,000 annually.
Now, every state and country in the U.S. wants these jobs.
3. As the Missouri State Treasurer, how much are you going to give Ford to put those jobs here? How long of a commitment for those jobs would you consider?
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The quantitative factors that would influence my decision in the Macdonald’s scenario on whether to continue making a component part or begin buying the part from an overseas supplier is the potential cost saving. This will be given by comparing the amount of money it would take to make the product here at home with the cost of importing one. If importing proves to be cheaper, then my business would be at liberty to import…
APA
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