please help me answer on this question.

consider all of the facts presented (including the memo from the lawyer in attachment #2 what contemprory damages, if any , are owned to clyde property management ? what additional facts might you need in order to fully answer this question?

I need about 10 sentences .

"Crazy" Connor Cooper is a somewhat eccentric yet enthusiastic businessman who believes in the social

responsibility of business. Incidentally, he is also interested in making enough money to live a

comfortable life. As a supporter of the ecology movement, he is very concerned with the hunting of

animals for industrial purposes, such as the making of furs, shoes, and ladies' handbags. As a

consequence, he formed Reptile Factory Enterprise (RFP), a company with a mission of promoting

crocodiles as household pets. (The choice of the animal was purely coincidental.) He plans to catch

crocodiles in Southeast Asia and sell them in the United States.1

The senior leadership team of the company consists of Mr. Connor Cooper (President), Brian Chu (Vice

President of Production, who is in charge of catching crocodiles), Marco Diaz (Vice President of Sales),

and Shelley Maze (Vice President of Operations, who is in charge of administrative functions including

cash collection from customers).

Facilities Planning

The first task facing Mr. Cooper was to raise capital. This required estimating future capital needs by

projecting the physical facilities and working capital needed for the business. Mr. Cooper's estimates

showed that he would need a fleet of boats to catch crocodiles in Southeast Asia and a holding tank in

the State of Gould to keep them alive in captivity after they are shipped. Because of the need to extend

liberal credit terms to skeptical customers, the company needed working capital to carry inventories and

receivables. Finally, the company needed a large start up investment for sales and an advertising

campaign. The firm also needed funds to hire new employees and to rent office space in the State of

Gould. Mr. Cooper asked Shelley Maze to prepare a forecast of activity to plan facility needs and to

translate it into capital needed to start the business.

First Year Results

Based on the forecast provided by Ms. Maze, Mr. Cooper and his ecology minded friends raised the

capital for acquiring the facilities. He leased ten boats in Southeast Asia, a 20,000 square foot

warehouse with a holding tank for the crocodiles in the State of Gould, and a 2,500 square foot office in

the State of Gould. Both the warehouse and the office were leased from Clyde Property Management

(CPM) for three years, beginning January 1, 2008.

The company opened its door for business on January 1, 2008. Marco Diaz launched an aggressive

sales and advertising campaign built around the slogan that crocodiles were warm, friendly and greatly

misunderstood creatures that deserved loving care. He designed a slick marketing campaign built initially

around the slogan: "Crocodiles -- don't handbag them, handle them with love."

During its first year, the company spent approximately $300,000 to catch 500 crocodiles. Of these, 300

crocodiles were sold and shipped to customers at a selling price of $1,000 per crocodile. Shipping costs

of $50 per crocodile were paid for during the year. Customers were given liberal credit terms and only

$160,000 from an equivalent 200 customers was collected during the first year. Ms. Maze estimated that

as much as 20% of the sales price will be spent in collection costs and bad debts expenses.

At the end of the first year, Mr. Cooper consulted with his other two colleagues and estimated that he

could catch and sell 600 to 800 crocodiles for the next year. Because of the company's apparent

success, Mr. Cooper wanted to expand its facilities. This meant getting funds to rent more boats and

warehouse space. He believed that he could now overcome the skepticism of banks and ask for a loan.

On January 2, 2009, Mr. Cooper notified Clyde Property Management that he no longer needed their

current warehouse and office space. He would be vacating the properties by January 30th in order to

move into larger facilities.

1 Assume that Mr. Cooper has somehow managed to obtain permits to sell live crocodiles legally.

He asked Ms. Maze to prepare an income statement for the bank in accordance with generally accepted

accounting principles (GAAP). In addition, since the executives were on a profit-sharing scheme, it was

necessary to determine profits in order to pay year-end bonuses.

Ms. Maze entrusted this task to her young staff accountant, Luis Norman, who had only recently

graduated from college and was on his first job. After he familiarized himself with the facts, Norman

realized that he needed to look up the GAAP accounting rules for preparing an income statement. At that

same moment, he also realized with some consternation that he had sold his college accounting textbook

when the course was over. Norman headed to his college library to find the relevant reference material.

A review of his old accounting textbook told him that two GAAP principles were particularly relevant for his

current task. The first was the matching principle, which requires that costs and revenues be matched by

time periods. The other was the principle of revenue recognition. His next step was to copy and read the

relevant sections of these principles from the pronouncements of the Financial Accounting Standards

Board. Attachment 1 shows the results of Norman's research into the appropriate GAAP rules for

preparing income statements.

On first reading the material, Norman thought it was going to be easy to prepare an income statement.

He remembered learning that for most businesses' revenue was earned when good were sold (that is,

when title passed from the seller to the buyer). However, as he read the statements of the FASB, he

realized that revenues could be recognized when production was complete or when cash was collected.

According to the FASB standard, "revenues are considered to have been earned when the entity has

substantially accomplished what it must do to be entitled to the benefits represented by the revenues."2

Norman realized that in order to determine the revenues for 2008, he must first determine when the

earning process is complete. This, however, was not a usual business. Therefore, Norman was not sure

when Reptile Factory Enterprise was "entitled to the benefits represented by the revenues". In order to

determine the critical point in the operations cycle when the business could do this, he decided to talk to

the three top executives.

His first conversation was with Brian Chu, V.P. Production. Brian told him that catching crocodiles was

the most critical activity for the business since "it is difficult to trap them suckers and you can lose a few

limbs in the process if you are not careful."

Norman next spoke to Marco Diaz, V.P. Sales. Marco pointed out that while catching may be a

dangerous activity, no one is likely to buy a crocodile because it is risky for us to catch them. He felt the

company's success this year was largely due to his clever holiday season advertising campaign with its

theme of: "this year give that special someone something live! Someday they can produce their own

shoes, handbags, and belts."

Norman's final conversation was with Shelley Maze, V.P. of Operations. She told Norman that, in her

opinion, the crucial activity for the business was cash collection. As she put it: "Brian and Marco have

never tried collecting cash. If they did, they would find out in a hurry that it is difficult to collect cash from

people who keep crocodiles as pets. Besides, we don't have a collection agency that is willing to

repossess live crocs!"

2Financial Accounting Standards Board, Statement of Concepts # 5, Paragraph 83.

The Lawyers Call

Even as Norman was puzzling over how to proceed, he received a call from Ms. Shelley Maze. "Luis, I

just heard from our lawyers. Apparently, Clyde Property Management (the property management

company that leased us the warehouse and office space) is claiming that we had no right to break the

lease. We are being sued for an amount equal to the balance of the lease term and for punitive

damages. Later that day Luis received the memo from the lawyers that is summarized in Attachment 2.

Required

Assume that you have been hired as a consultant by Shelley Maze to help her and Luis Norman. She

has asked you for your help on the GAAP income statements and the legal issues arising from the lease

cancellation. Please write a business report using the case writing guidelines and report format guide

from the Gateway website.

To prepare an answer to this case you may want to review the following top ten concepts from the LDC

Review material:

1. Financial Accounting # 3. Know the basic concepts underlying financial reporting (e.g.

matching, consistency, etc.).

2. Financial Accounting # 4. Know how to record and read a simple business transaction.

3. Financial Accounting # 8. Understand the timing of revenue and expense recognition.

4. Business Law # 5. Understand the duty to mitigate damages.

5. Business Law # 9. Understand the differences between compensatory and punitive damages.

Attachment 1

Excerpt of Relevant GAAP Principles for Income Statement Preparation

I - ACCOUNTING PRINCIPLES STATEMENT # 4. GENERALLY ACCEPTED ACCOUNTING

PRINCIPLES-- PERVASIVE PRINCIPLES2

Footnote 43. The term matching is often used in the accounting literature to describe the entire process

of income determination. The term is also often applied in accounting, however, in more limited sense to

the process of expense recognition or in an even more limited sense to the recognition of expenses by

associating costs with revenue on a cause and effect basis.

Associating cause and effect. Some costs are recognized as expenses on the basis of a presumed

direct association with specific revenue . . . Although direct cause and effect relationships can seldom be

conclusively demonstrated, many costs appear to be related to particular revenue and recognizing them

as expenses accompanies recognition of the revenue. Examples of expenses that are recognized by

associating cause and effect are sales commissions and costs of products sold or services provided.

II - STATEMENT OF CONCEPTS # 5. RECOGNITION AND MEASUREMENT IN FINANCIAL

STATEMENTS OF BUSINESS ENTERPRISES3

Revenues and Gains -- Paragraph 83. Revenues and gains of an enterprise during a period are

generally measured by the exchange values of the assets (goods or services) or liabilities involved, and

recognition involves consideration of two factors (a) being realized or realizable and (b) being earned,

with sometimes one and sometimes the other being the more important consideration.

a) Realized or realizable. Revenues and gains generally are not recognized until realized or realizable.

Revenues and gains are realized when products (goods or services), merchandise, or other assets

are exchanged for cash or claims to cash. Revenues and gains are realizable when related

assets received or held are readily convertible to known amounts of cash or claims to cash.

b) Earned. Revenues are not recognized until earned. An entity's revenue-earning activities involve

delivering or producing goods, rendering services, or other activities that constitute its ongoing major

or central operations, and revenues are considered to have been earned when the entity has

substantially accomplished what it must do to be entitled to the benefits represented by the

revenues.

Paragraph 84. In recognizing revenues and gains:

a) The two conditions (being realized or realizable and being earned) are usually met by the time

product or merchandise is delivered or services are rendered to customers, and revenues from

manufacturing and selling activities and gains and losses from sales of other assets are commonly

recognized at time of sale (usually meaning delivery).

b) If sale or cash receipt (or both) precedes production and delivery (for example, magazine

subscriptions), revenues may be recognized as earned by production and delivery.

2 Financial Accounting Standards Board, APS 4: Basic Concepts and Accounting Principles Underlying Financial

Statements of Business Enterprises, APS 4, October 1970.

3 Financial Accounting Standards Board, Statement of Concepts # 5, Paragraph 83, December 1984.

c) If product is contracted for before production, revenues may be recognized by a percentage-of-

completion method as earned--as production takes place--provided reasonable estimates of results at

completion and reliable measures of progress are available.

d) If products or other assets are readily realizable because they are salable at reliably determinable

prices without significant effort (for example, certain agricultural products, precious metals, and

marketable securities), revenues and some gains or losses may be recognized at completion of

production or when prices of the assets change

e) If collectability of assets received for product, services, or other assets is doubtful, revenues and

gains may be recognized on the basis of cash received.

Attachment 2

Lawyer's Memo on Reptile Factory's Legal Liability

M E M O R A N D U M

TO: Shelley Maze

Reptile Factory Enterprise

FROM: Matt Green, Esq.

RE: Reptile Factory Enterprise

DATE: January 3, 2009

I just spoke with Keith Fox, the attorney for Clyde Properties. According to Mr. Fox, his client

leased to Reptile Factory Enterprise 2,500 square feet of office space and 20,000 square feet of

warehouse space.

According to Mr. Fox, Clyde is prepared to sue Reptile Factory Enterprise for $372,000. [This

amount includes $72,000 in lost rent and $300,000 in punitive damages.] The claim is itemized

below:

Warehouse:

Monthly rent $2,000

Balance of the lease 24 months

Total rent for warehouse 48,000

Office space:

Monthly rent 1,000

Balance of the Lease 24 months

Total rent for warehouse 24,000

TOTAL RENT 72,000

PUNITIIVE DAMAGES 300,000

_______

TOTAL RENT AND PUNITIVE DAMAGES 372,000

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