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Ch18 Research Cases by HC120613222147

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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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