Halloween Outfit Warehouse Limited Halloween Outfit Warehouse Limited ("HOWL") is a private company, wholly owned by Anastasia Papadoupoulos. HOWL sells costumes, decorations, accessories and supplies for various holidays and for parties/events in general. HOWL's business is somewhat seasonal, as there is a huge increase in demand for products right before Halloween and again right before Christmas. The company has several store locations across the Greater Toronto Area and a website through which its products can be ordered and shipped to anywhere in the world. The company was founded in 1999 and has been quite successful, allowing Anastasia to quit her full-time job with the accounting firm of Pourzakikhani Weinreb Caprese. HOWL has been Anastasia's only source of income ever since. Anastasia attributes much of HOWL's success to the attitude and friendliness of the sales staff. As a reward, the company pays each salesperson a 10% commission from every sale that he or she makes during each shift, in addition to a competitive hourly wage. Today is February 17, 2011, Anastasia hired you as her accounting advisor. Through discussions with Anastasia, as well as a review of HOWL's draft financial statements for the year ended December 31, 2010, you gathered the following information: 1. The most popular Halloween costume in 2010 was Avatar. HOWL was able to successfully anticipate and capitalize on this trend, buying 10,000 Avatar costumes at $30 per item for sale through its locations. Such costumes were then sold for close to $100 per item right before Halloween. HOWL has 2,000 of these costumes remaining at year-end. Anastasia believes that the Avatar costumes can still be sold in 2011 for a price of $20 per item. 2. HOWL sold bonds to the general public on October 1, 2010. The bonds were sold for $100,000 above face value since the 10% annual coupon rate was higher than the 8% annual market interest rate at the time of issuance. The coupon payments are made semi-annually. HOWL recorded the issuance of the bond as follows: Dr. Cash 900.000 Cr. Gain on sale of bonds 100,000 Cr. Bonds payable 800,000 3. HOWL had recorded an allowance for doubtful accounts of $50,000 during 2010 against accounts receivable from a large customer that was almost bankrupt. Much to the surprise and delight of HOWL, full payment of the accounts receivable was received from the customer on February 11, 2011. HOWL did not make any other entries on its books for 2010 since the payment came in after the year-end of December 31. Required: Prepare a report to Anastasia regarding the appropriate treatment for the items described above. Your report should include a discussion of constraints, users and objectives, as well as your recommendations. Provide any other advice that would be helpful to Anastasia. Halloween Outfit Warehouse Limited Halloween Outfit Warehouse Limited ("HOWL") is a private company, wholly owned by Anastasia Papadoupoulos. HOWL sells costumes, decorations, accessories and supplies for various holidays and for parties/events in general. HOWL's business is somewhat seasonal, as there is a huge increase in demand for products right before Halloween and again right before Christmas. The company has several store locations across the Greater Toronto Area and a website through which its products can be ordered and shipped to anywhere in the world. The company was founded in 1999 and has been quite successful, allowing Anastasia to quit her full-time job with the accounting firm of Pourzakikhani Weinreb Caprese. HOWL has been Anastasia's only source of income ever since. Anastasia attributes much of HOWL's success to the attitude and friendliness of the sales staff. As a reward, the company pays each salesperson a 10% commission from every sale that he or she makes during each shift, in addition to a competitive hourly wage. Today is February 17, 2011, Anastasia hired you as her accounting advisor. Through discussions with Anastasia, as well as a review of HOWL's draft financial statements for the year ended December 31, 2010, you gathered the following information: 1. The most popular Halloween costume in 2010 was Avatar. HOWL was able to successfully anticipate and capitalize on this trend, buying 10,000 Avatar costumes at $30 per item for sale through its locations. Such costumes were then sold for close to $100 per item right before Halloween. HOWL has 2,000 of these costumes remaining at year-end. Anastasia believes that the Avatar costumes can still be sold in 2011 for a price of $20 per item. 2. HOWL sold bonds to the general public on October 1, 2010. The bonds were sold for $100,000 above face value since the 10% annual coupon rate was higher than the 8% annual market interest rate at the time of issuance. The coupon payments are made semi-annually. HOWL recorded the issuance of the bond as follows: Dr. Cash 900.000 Cr. Gain on sale of bonds 100,000 Cr. Bonds payable 800,000 3. HOWL had recorded an allowance for doubtful accounts of $50,000 during 2010 against accounts receivable from a large customer that was almost bankrupt. Much to the surprise and delight of HOWL, full payment of the accounts receivable was received from the customer on February 11, 2011. HOWL did not make any other entries on its books for 2010 since the payment came in after the year-end of December 31. Required: Prepare a report to Anastasia regarding the appropriate treatment for the items described above. Your report should include a discussion of constraints, users and objectives, as well as your recommendations. Provide any other advice that would be helpful to Anastasia