ATC 10-4Writing AssignmentEmerging practices in managerial accounting

On April 14, 2012,Best Buy Company, Inc., issued a press release from which the following excerpt was taken:

April 14, 2012Best Buy announced plans March 29, 2012, to close 50 U.S. stores as part of a number of key initiatives for this year. This was not an easy decision to make. We chose these stores carefully, and are working to ensure the impact to our employees will be as minimal as possible, while serving all customers in a convenient and satisfying way. But we also recognize the impact this news has on the people who deserve respect for the contributions they have made to our business. More broadly, our previously announced retail store actions are intended to increase points of presence, while decreasing overall square footage, for increased flexibilityincluding key store remodels with a new Connected Store format, while continuing to build out the successful Best Buy Mobile small format stores throughout the U.S. We are committed to making it easier for customers to shop with us, whenever and wherever they want.

The restructuring cost Best Buy $40 million and disrupted the lives of many of the company's employees.

Required

Assume that you are Best Buy's vice president of human relations. Write a letter to the employees who are affected by the restructuring. The letter should explain why it was necessary for the company to undertake the restructuring. Your explanation should refer to the ideas discussed in the section Emerging Trends in Managerial Accounting of this chapter (see Appendix).

ATC 10-5Ethical DilemmaProduct cost versus selling and administrative expense

Emma Emerson is a proud woman with a problem. Her daughter has been accepted into a prestigious law school. While Ms. Emerson beams with pride, she is worried sick about how to pay for the school; she is a single parent who has worked hard to support herself and her three children. She had to go heavily into debt to finance her own education. Even though she now has a good job, family needs have continued to outpace her income and her debt burden is staggering. She knows she will be unable to borrow the money needed for her daughter's law school.

Ms. Emerson is the chief financial officer (CFO) of a small manufacturing company. She has just accepted a new job offer. Indeed, she has not yet told her employer that she will be leaving in a month. She is concerned that her year-end incentive bonus may be affected if her boss learns of her plans to leave. She plans to inform the company immediately after receiving the bonus. She knows her behavior is less than honorable, but she believes that she has been underpaid for a long time. Her boss, a relative of the company's owner, makes twice what she makes and does half the work. Why should she care about leaving with a little extra cash? Indeed, she is considering an opportunity to boost the bonus.

Ms. Emerson's bonus is based on a percentage of net income. Her company recently introduced a new product line that required substantial production start-up costs. Ms. Emerson is fully aware that GAAP requires these costs to be expensed in the current accounting period, but no one else in the company has the technical expertise to know exactly how the costs should be treated. She is considering misclassifying the start-up costs as product costs. If the costs are misclassified, net income will be significantly higher, resulting in a nice boost in her incentive bonus. By the time the auditors discover the misclassification, Ms. Emerson will have moved on to her new job. If the matter is brought to the attention of her new employer, she will simply plead ignorance. Considering her daughter's needs, Ms. Emerson decides to classify the start-up costs as product costs.

Page 401 Required

1. Based on this information, indicate whether Ms. Emerson believes the number of units of product sold will be equal to, less than, or greater than the number of units made. Write a brief paragraph explaining the logic that supports your answer.
2. Explain how the misclassification could mislead an investor or creditor regarding the company's financial condition.
3. Explain how the misclassification could affect income taxes.
4. Review the Statement of Ethical Professional Practice shown inExhibit 10.17and identify at least two ethical principles that Ms. Emerson's misclassification of the start-up costs violated.