1. Describe the rules in accounting for revenue recognition in general and relate them to the two transactions mentioned in the case. Be sure to include proper citations from the pronouncements of the Financial Accounting Standards Board (FASB) and other relevant material. Do you believe the transactions have been accounted for properly?
2. Prepare the following schedules:
a. Percentage change in revenues from 2009 through the projected amounts in 2013.
b. Percentage of net income to revenues from 2008 through the projected amounts in 2013.
c. Redo parts (a) and (b) assuming the DSS transaction is included in the projected results for 2013.
What questions might you raise from an ethical perspective with respect to these calculations and the motivation for Paul Henley to include the DSS transaction in 2013?
3. Assume you are in Sarah Young’s position and have decided to try to change Paul Henley’s mind with respect to the accounting for the December 28, 2013 transactions. What steps might you take to counteract the position of Henley prior to the auditors’ arrival on February 1, and why?