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Chapter 18 Case 1 Locate the article titled “SEC Broadens Investigation in Revenue-Boosting Tricks”, by Susan Pulliam and Rebecca Blumenstein, in the May 16 2002 edition of The Wall Street Journal. Instructions (a) The article predicts that, “Probing revenue promises to be a much broader inquiry than the earlier investigations of Enron and other companies accused of using accounting tricks to boost their profits.” What is the difference between inflating profits and inflating revenues? (b) What are the ways in which accounting information is used (both in general and in ways specifically cited in this article)? What are the concerns about using accounting information that has been manipulated to increase revenues? To increase profits? (c) Describe the specific techniques that may be used to inflate revenues that are enumerated in this article. Why would a practice of inflating revenues be of particular concern during the “dot-com boom”? (d) The article says that L90 Inc. “lopped $8.3 million, or just over 10%, off revenue previously reported for 2000 and 2001,” while booking the $250,000 net difference in the amount of wire transfers that had been used in one of these transactions as “Other income” rather than revenue. What is the difference between revenues and other income? Where might these items be found in a multi-step income statement? In a single-step income statement? Case 2 From the U.S. Securities and Exchange Commission web site (www.sec.gov), locate the 10-K report filed by Telanetix, Inc. on March 27, 2009 and covering the fiscal year ending December 31, 2008. You will need information from the notes to the financial statements. We suggest you do not print the entire document (it will be many pages). Rather, simply view the document on your computer screen. Instructions (a) Describe Telanetix’s revenue recognition policies. (b) Your text describes how companies should present the ‘construction in progress’ and ‘billings’ accounts when using percentage-of-completion revenue recognition. What are the balances in these accounts for Telanetix at December 31, 2008? Are they likely current assets or current liabilities?
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