Issue Analysis Outline

FRAMEWORK:

1. Users and Objectives:

• Identify the Users of the Financial Statements (be sure the users are RELEVANT to the case study)
• Identify the Users objectives

2. Identify the Relevant Accounting Policies/Issues involved

3. Analyze Issues, Options, Implications

• Identify Alternative Options
• Analyze each options (minimum 2 options per policy)
• Identify the implications of each option

4. Make a recommendation with reasoning

1. Users and Objectives:

User #1:

Objectives:

User #2:

Objectives:

2. Relevant Accounting Policies/Issues:

Policy/Issue #1:

Policy/Issue #2:

3. Analysis of Issues, Available options and Implications:

Issue #1:

Criteria to Consider:

Alternative #1:

Analysis

Implications:

Alternative #2:

Analysis: -

Implications:

Issue #2:

Criteria to Consider:

Alternative #1:

Analysis

Implications:

Alternative #2:

Analysis: -

Implications:

4. Recommendation (with reasoning): State the preferred option explaining why it is the best choice.

Multiple choices are available correct answer is dependent on the rationale that is provided with the choice, and whether the rationale reasonably supports the recommendation.

Delta Seafood Corporation Page 1 At the request of the Board of Directors you have been asked to attend a meeting for Delta Seafood Corp. where Sam, President and Chief Financial Officer (CFO) will update the Board on the status of the company during the past year which ended December 31, 2018. Sam, President and CFO looks happy as he begins his summary of financial results: As you can see in the attached summary of financial information, we have finally had the first profitable year since we started the company 3 years ago. In terms of financial ratios we are looking relatively healthy with our current ratio; our bank requires us to maintain a current ratio of 1.50 and we are exceeding that requirement this year. If we do not maintain this ratio, however, the bank has the ability to demand repayment of their loan immediately. As a result of the healthy outlook and the turnaround in profitability I think that our shares will get a big boost in value when this is reported. As you are aware, when we went public it was under the condition that none of the Board or Senior Management were allowed to sell their personal shares until we reported a profitable year. This result will remove that condition. In order to update you from the sales side I have invited Jim (VP Marketing) here to speak." Jim, VP Marketing: "It has been a successful year. Revenue was up substantially so as a result the year end bonuses to myself and my department were up substantially as well. As an example of our extra efforts, our company recorded an additional sale of $95 million in December 2018 when we came to an agreement with Sun-Yang Industries in China. The agreement was to supply them with seafood products for a total price of $95 million. We shipped $15 million of the product in December 2018 and while we had the remaining inventory for the rest on hand, we were unable to ship it to Sun-Yang until January 3, 2019 due to a winter storm. The $95 million is comprised of $35 million that we received December 30, 2018 and $60 million to be paid January 31, 2019. Due to the downturn in global markets I had heard that Sun-Yang was slow in paying their suppliers but I believe that Sun-Yang is a reputable company and has every intent on fulfilling their contract. However, due to the economic problems in the USA we are concerned about the status of the receivable from Wayer Industries Ltd. who currently owes us $20 million. We had heard rumors that they were considering filing for bankruptcy, but until we hear definitely that they are in bankruptcy we will not make any provision on the financial statements for bad debt expense." The Board asked you to attend because they are uncertain about the abilities of the President to fulfill the CFO role and they are unsure if he and the VP's have the best interests of the Company in mind. A copy of the Company's Financial Statements are provided on the next page Delta Seafood Corporation Page 2 Delta Seafood Corp Statement of Financial Position (in Millions) 2018 2017 2016 125 74 Assets Current Assets Capital Assets (net) Total Assets 856 981 597 671 26 349 375 51 65 Liabilities Current Liabilities Long Term Debt Total Liabilities 276 290 355 106 215 321 327 577 Shareholder's Equity Common Shares Retained Earnings Total Shareholders Equity 77 412 -96 316 100 -46 54 654 Total Liabilities and Shareholder's Equity 981 671 375 Delta Seafood Corp Statement of Income (in Millions) 2018 2017 829 416 656 466 173 -50 2016 126 Revenues Total Expenses Net Income 172 -46 Retained Eamings (beginning of year) Retained Eamings (end of year) -96 77 -46 -96 0 -46 ao Delta Seafood Corporation Page 1 At the request of the Board of Directors you have been asked to attend a meeting for Delta Seafood Corp. where Sam, President and Chief Financial Officer (CFO) will update the Board on the status of the company during the past year which ended December 31, 2018. Sam, President and CFO looks happy as he begins his summary of financial results: As you can see in the attached summary of financial information, we have finally had the first profitable year since we started the company 3 years ago. In terms of financial ratios we are looking relatively healthy with our current ratio; our bank requires us to maintain a current ratio of 1.50 and we are exceeding that requirement this year. If we do not maintain this ratio, however, the bank has the ability to demand repayment of their loan immediately. As a result of the healthy outlook and the turnaround in profitability I think that our shares will get a big boost in value when this is reported. As you are aware, when we went public it was under the condition that none of the Board or Senior Management were allowed to sell their personal shares until we reported a profitable year. This result will remove that condition. In order to update you from the sales side I have invited Jim (VP Marketing) here to speak." Jim, VP Marketing: "It has been a successful year. Revenue was up substantially so as a result the year end bonuses to myself and my department were up substantially as well. As an example of our extra efforts, our company recorded an additional sale of $95 million in December 2018 when we came to an agreement with Sun-Yang Industries in China. The agreement was to supply them with seafood products for a total price of $95 million. We shipped $15 million of the product in December 2018 and while we had the remaining inventory for the rest on hand, we were unable to ship it to Sun-Yang until January 3, 2019 due to a winter storm. The $95 million is comprised of $35 million that we received December 30, 2018 and $60 million to be paid January 31, 2019. Due to the downturn in global markets I had heard that Sun-Yang was slow in paying their suppliers but I believe that Sun-Yang is a reputable company and has every intent on fulfilling their contract. However, due to the economic problems in the USA we are concerned about the status of the receivable from Wayer Industries Ltd. who currently owes us $20 million. We had heard rumors that they were considering filing for bankruptcy, but until we hear definitely that they are in bankruptcy we will not make any provision on the financial statements for bad debt expense." The Board asked you to attend because they are uncertain about the abilities of the President to fulfill the CFO role and they are unsure if he and the VP's have the best interests of the Company in mind. A copy of the Company's Financial Statements are provided on the next page Delta Seafood Corporation Page 2 Delta Seafood Corp Statement of Financial Position (in Millions) 2018 2017 2016 125 74 Assets Current Assets Capital Assets (net) Total Assets 856 981 597 671 26 349 375 51 65 Liabilities Current Liabilities Long Term Debt Total Liabilities 276 290 355 106 215 321 327 577 Shareholder's Equity Common Shares Retained Earnings Total Shareholders Equity 77 412 -96 316 100 -46 54 654 Total Liabilities and Shareholder's Equity 981 671 375 Delta Seafood Corp Statement of Income (in Millions) 2018 2017 829 416 656 466 173 -50 2016 126 Revenues Total Expenses Net Income 172 -46 Retained Eamings (beginning of year) Retained Eamings (end of year) -96 77 -46 -96 0 -46 ao