I need help with accounting case study questions. The questions are located at the very end of the case study. Thanks for your assistance!

Robert Sampson, director of Human Resources at Carver Consulting Co. (CC) was speaking with Patricia Ryan, who had recently joined CC as a specialist in personnel and human relations. Three-and-one-half years earlier, Ryan had earned a Master of Business Administration degree and accepted a position on the human relations staff of a Big Six accounting firm. In November 1993, a headhunter called and she was convinced to resign her position and join CC. Sampson continued: The chairman specifically asked that this assignment go to you. So whether you have time to take it on this morning or not, it's yours. His office has already faxed a copy of the summary report on operations for 1993 at the National Training Center. The Firm Carver Consulting Co. was established late in 1991 by the merger of four separate consulting firms, each of which had been competing on a national basis. The concept of the merger was that a larger firm would be able to offer stronger and more diversified services on a nationwide basis in the United States and compete internationally with larger firms in the industry. The combined firms had nearly 1,400 partners and employed almost 10,000 personnel in 51 offices in the United States, and London, Paris, Frankfurt, and Mexico City. Much consolidation and reorganization was made necessary as a result of the merger. In the cities where the newly merged firms each had offices, consolidation was inevitable. Real estate leases had to be negotiated or renegotiated to achieve economies of operation. Fortunately, the newly merged firm had sufficient operating capital that the restructuring could take place quickly, and the consolidation was mostly completed by mid-1993. Even before the merger had taken place, the new firm had decided that required training for all professional staff would be one of the new firm's hallmarks. Initially, it was determined that all partners would be required to engage in a training activity for at least one week each year on average, and all other staff consultants would be required to spend two weeks each year in training. While such a requirement was not unprecedented in the professional services industry, CC's standard would be a costly one: not only would the firm have to bear the cost of training, but during training, consultants would not be available to serve on assignments and to earn fees. Nevertheless, the partners in the new venture were convinced that professional training would provide a competitive edge until other professional service firms matched them. Initially, the training requirement could be met in two ways. Consultants could choose to participate in professional development seminars run by universities or other training agents. Alternatively, individual offices of CC could organize their own training sessions. The problem with the second alternative was that it was hard to achieve economies of scale within a single office without effectively shutting down that office during the time training was taking place. Against that background, the Management Committee proposed to develop or purchase a training facility which would provide regular training for partners and staff of CC on a cost-effective and firm-specific basis. Training would be based on CC consulting principles and would be consistent with the culture that the new firm hoped to create and maintain. In early 1992, CC learned that the entire campus of Sandown College in suburban Des Moines was for sale, and a decision was made to purchase the property, renovate buildings, and establish the National Training Center. The National Training Center In July 1992, CC purchased Sandown College. Included in the $4 million purchase price was an administrative building, which housed several classrooms, several residence halls, and other incidental buildings. Half of the purchase price was allocated to the land, and half was allocated to the buildings. All buildings on the property were in substantial disrepair, as Sandown had struggled financially for several years before closing. In 1992, CC had all buildings except the administrative and classroom building and one residence hall destroyed and immediately began renovating the two buildings which would become the National Training Center. Each of the two buildings to be renovated was allocated half of the purchase cost of $2 million for the buildings, or $1 million each. The cost of renovations was great. A total of $7.5 million was spent renovating the residence hall, while renovations to the office and classroom building required an expenditure of just over $8 million. In both cases, the costs of renovation exceeded estimates because of unknown structural problems and the need for unexpected asbestos removal. The proposal to create the National Training Center envisioned a permanent full-time staff devoted to training programs for partners and staff consultants, and a separate staff responsible for management and operation of the residence hall with its associated cafeteria. The capacity of the National Training Center would be 120 participants for the 48 weeks it would operate each year. Programs for partners would have space for 30 partners each week, while those for staff consultants could accommodate 90, usually in two sections of 45 each. While CC would employ a professional training staff, they would also use external trainers from both professional firms and professors from universities with national reputations. Though the cost of external trainers was expected to be high, it would distinguish CC's training effort from those of other professional service firms that did all of their own training in-house. With renovations complete and the staff hiring nearly complete by the end of 1992, the National Training Center opened during the first week of January in 1993. Many on the professional staff had been reluctant initially to support the idea of a national training center. However, evaluations from participants in company-sponsored training programs held at the Center during 1993 were extremely positive. The renovations had resulted in comfortable accommodations, and the classrooms were state-of-the-art classrooms with equipment for case discussions, multimedia presentations, and computer-based learning. As the year progressed word went out through the firm that the National Training Center was a great place to go to study with, and to get to know, other members of the professional staff of CC. The proposal on which the decision to establish the National Training Center had been based estimated an expenditure of $16.5 million for the purchase of Sandown College and building renovations. On a perweek basis, the forecasted cost of operating the National Training Center was estimated to be $784 dollars a week per participant, including the transportation cost of getting staff members from their home base to the National Training Center and back again. The decision to have the Center cover transportation cost was designed to minimize the reluctance of local offices to send people to the National Center instead of conducting their own training locally. Robert Sampson had explained to Patricia Ryan that the costs of training had been a topic for lively discussion among the partners before the decision was made to establish the National Training Center. In addition to the cash costs of training sessions, training incurs other kinds of costs. While they are participating in training sessions, staff consultants, partners, and principals are not working on client projects and are unable to bill clients for their time. In round numbers, the cost to the firm of this use of time is about $3,500 per week for a staff consultant and about $7,400 per week for a partner or principal, based on estimates for 1993. In addition, staff consultants continue to earn their salaries while they are in training sessions. Robert Sampson and Patricia Ryan had just had time to note that the cost per participant per week at the National Training Center shown on the report on operations for 1993 was $1,047 about 33% higher than that forecasted in the proposal. Sampson had just commented that it was no wonder the chairman wanted to figure out what was happening at the Center when the facsimile machine beeped its message that the chairman's questions had arrived. Ryan knew that it was time to get to work. This would be the first work that she had done directly for the chairman. She wanted to be as thorough and complete as she could be in the four hours that were available before she was to deliver her outline, notes, analysis, and conclusions to the chairman to study before the Management Committee met. The Chairman's Memo and Questions To: Patricia Ryan (and Robert Sampson) Office of Human Resources From: David Li, Chairman Date: January 18, 1994 Subject: Questions about the National Training Center The first year of operations at the National Training Center is now history, and the Management Committee will be discussing the performance of the Center at our meeting this afternoon. I would very much appreciate your analysis and recommendations about three issues which concern me. First, I need some help in thinking about the proper accounting for the costs we are incurring because of the important role of training in the firm strategy; it seems to me that we are creating something of great value to the firm and its future, and I think our balance sheet should reflect that value in some way. Second, the summary report on operations (copy faxed to Sampson this morning) concerns me a great deal; it looks to me that the costs of the Center are running about one-third higher for each participant than we forecast at the time the Center was proposed in 1992. Third, my concerns about the costs lead me to conclude that we should explicitly discuss establishing management control systems for the Center so that we can assess its effectiveness on an ongoing basis. Questions on Accounting for Training Costs: 1. On January 1, l993, the Statement of Financial Position for CC showed the National Training Center at its cost to the firm, or $19.5 million. The investment that we had made by purchasing Sandown College and renovating our two buildings there was fully disclosed to our partners, all of whom took great pride in our decision to create the Center. Now, with a year operations behind us it seems to me that we have created some valuable human capital and that our balance sheet should reflect the added value of the firm because of the training programs we have conducted at the Center. I realize that if we were a firm subject to generally accepted accounting principles this would be difficult or impossible because our auditors would probably object, but CC is a partnership and is privately owned by the partners only. For this reason, application of the accounting principles of accrual, matching, and realization all seem to me to support the idea that some or all of the training costs that we incurred in 1993 should be capitalized this year so that these potential expenses can be matched with the additional revenues we hope our trained professional staff will generate. Do you agree? Why, or why not? 2. Regardless of your answer to Question l, which of the training costs incurred in 1993 are the best candidates for capitalization? If you suggest that some, but not all, of the training costs incurred in 1993 are good candidates for capitalization, what are the criteria that permit you to separate those that might be capitalized from those that should not be capitalized? Are there other costs incurred by CC that are related to its training activities that should be capitalized? 3. If we adopt a policy of capitalizing some of the training costs that we incur at the Center, then we will have to adopt a policy for when those costs should be recognized as expenses. According to the presentation that Robert Sampson made to our partners at last year's Partners Meeting, the average employment of a newly hired professional as a staff consultant will be just over three years; 30% will leave the firm before three years, and only 30% still will be with the firm at the end of the fourth year. Only about one in ten staff members is likely to become a partner or principal. At any one time, the average partner or principal will be a member of the firm for seven years from the current date. I am not sure how these data fit together with the idea that every staff consultant should spend two weeks in training each year and each partner or principal should average one week in training each year. If some training costs are capitalized, over what time period should they be matched with revenues? Please outline a possible accounting policy that I can present to and discuss with the Management Committee. 4. If we do adopt a policy of capitalizing some training costs, the operating income that we will report to partners will be higher for 1993 than if we do not capitalize some training costs. How, if at all, should this affect the cash payout to partners and principals for 1993? How will the capitalization of training costs affect the cash flows for the firm? Questions on the Operations of the National Training Center: 5. Please analyze as completely as you can for me why the 1993 actual cost per participant of $l, 047 per week exceeded the proposal estimate of $784 per week. I expect that there are going to be questions about this from the Management Committee, so the more clearly you can present and reconcile what we expected to what actually happened will help me very much. Do you have any possible hypotheses about why the differences occurred or what might have caused them? 6. I am not really very happy about the ways in which we are tracking the cost of training at the Center. Can you outline a system or ways we might do this better in the future? 7. One problem that we have had at the National Training Center is filling the available training weeks for partners and principals. Whenever I ask about this I am told that these people are reluctant to attend training at the Center because it means that those hours and days cannot be billed to clients, and billable time is part of the formula we use to distribute profits to partners and principals at the end of each operating year. Do you have any suggestions about changes to the firm's management control systems or incentive systems to encourage partners and principals to use the Center to its capacity