Each part should be no more than 1 page in length.

Part I

The rules of accounting provide management with some latitude in determining when revenue is earned. Assume that a company normally required acceptance by its customers prior to recording revenue as earned, delivers a product to a customer near the end of the quarter. The company believes that customer acceptance is assured, but cannot obtain it prior to the quarter-end. Recording the revenue would assure making its numbers for the quarter. Although formal acceptance is not obtained, the salesperson records the sale, fully intending to obtain written acceptance as soon as possible.

1. What are the revenue recognition requirements in this case?

2. What are the ethical issues relating to this sale?

3. Assume you are on the board of directors of this company. What safeguards can you put in place to provide assurance that the companys revenue recognition policy is followed?

Part II

Research and review what a financial statement derivative is. Identify an example and how companys use to leverage the business activities.

Part III

A companys return on net operating assets (RNOA = NOPAT/Average NOA) is commonly used to evaluate financial performance. If managers cannot increase NOPAT, they can still increase this return by reducing the amount of net operating assets (NOA). In bullet form, list specific ways that managers could reduce the following assets:

1. Receivables

2. Inventories

3. Plant, property equipment