Simulation Question 4-2 This simulation question is based upon a true set of facts. The information contained in the simulation question was obtained from publicly available sources. "How Did Sunbeam Corporation Improperly Recognize Its Revenue? Sunbeam Corporation is a Delaware corporation headquartered in Boca Raton, Florida, that manufactures household appliances and outdoor products. From the last quarter of 1996 until June 1998, Sunbeam restructuring of Sunbeam in order to inflate its stock price and thus improve its value as an acquisition target. To this end, management en Corporation's senior management created the illusion of a successful inancial Statement Fraud condition. Among these created a $12 million litigation reserve ag which from a sumenus improper accounting methods to falsify the Corporation's esus and conceal its deseriorating fina part of a "big bath" (a) Al year-end 1996 Sunbeam Corporation improperly created $35 allion in "cockie jar" reserves as were neversed into income the following year in 1997. For example, Sanbeam Corporation oxt established in conformity with Generall iability by at least S6 million Accounting hacples (GAAP) and improperly overstated Sunbeam C (b) At the end of March 1997, just before the quarter closed, Sunbeam C contingent ownership. Morcover, the agrcement provided that the wholesaler could return all of the menchandise if of "form over substance" revenue end, without accepting any risks of nct sell the merchandise, and that orporation bookod 1.5 million alc of harbecue grills to a wholesaler. The wholesaler held Sunbeam mechandise over a quarter sholesaler in fact retumed all of the grills to Sunheam wold pay all costs of shipment and stenge. Iscurring no espemses in this transaction, the Sunbeam Corporation during the third quarter of 1997 c) Reginsing with the first quater of 1997, Sunbeam Corporation began a panern of accelerating its e discounes and other incentives to place their purchase oeders hefore t accelcrating espacted sales theough "channel stuffing" from later parids into the prosent period provided a Company's profit margins and impoverished sales in laice periods, knowm as a "doon loop" approach to earnin (d) ls the second quarter of 1997, Sunbeam corporation began using "bill and hoild sales to improve camings incentives to write purchase orders before they needed the peoducts. Thus, Sanbeam Corporation sold products n normally have sold in later periods. Typically, Sunbeam Corporation offered he period when they would otherwise have done so. This practice of offering its customers financial the second quarter that it would to hold prodacts for its customers until delivery was requested and ofiten retained the right, through explicit agreement to pay the costs of storage, shipment, and insurance on the products. Moreover, the cusdomers or established peactice, to retum unsold products to Snbeam Corporation Reguired 1. For part (a) above o) Explain clearly what the term "cookie-jar" reserves meant. Refier to accounting textbooks or search the Internet for the meaning Explain clearly what the term a "big bath restructuring mcant. Refer to accounting texbooks or search the Internet for the meaning (i) Explain clearly why the "cookie-jar" reserves and the "big bath" restructuring are not in conformity with Generally Accepted Ac Principles (GAAP), Refer to the Stateoment of Financial Accounting Standards No.5 (FAS 5) and the SECs Staff Accounting Bulletin No. 101 01) 2. For part (b) above 0) Explain clearly what the term -1orm over substance" in r recognition meant Refer to accounting textbooks or search the Internet for the (a) Explain clearly why the "form over substance" in revenue recognitice on a contingent sale is not in conformity with Generally Accepted Accounting Principles (GAAP). Refer to the Statcment of Financial Accounting Sandards No5 (FAS 5) and the SEC's Staff Accounting Bulletin No.101 (SAB 101). 3. For part (c) ahove 0) Explain clearly what the term "channel stuffing" in sales meant. Refer to acounting textbooks or search the Internet for the meanin i) Explain clearly what the 1crm a "doom loop" approach in carning management mcant Refer to accounting texthooks or search the Internet for g- he meaning. (ii) Explain clearly why undisclosed or inadoquate disclosed "channel stuffing in sales and the "doom loop" approach do not meet the quarterly filing requirement of the SEC. Refer to the SEC's Regulation g management S-K, items 101 and 303 for quarterly filing on Form 10-Q 4. For part (d) above in earnin sales meant. Refer to accounting texbooks or search the Internet for the (i) Explain clearly what criteria should be used to recognize revenue on Generally Accepted Accounting Principles (GAAP). Refer to this website were moved, search other available websites. Sunbcam Corporation's "bill and hold" sales in conformity wit (i) Explain clearly what criteria should be ased to recognize revenuc on Sunbcam Corporation's bill and hold" sales under in conformity with the disclosure requirement of the SEC. Refer to the SEC's Matner of Stewart hatp/www.acca.com haptersipresamisaclscsldS htm for information: Accounting and AuslinEent Re (AER) No.108 (Agust 5, 1986) and Saff Accounting Balictin No.101 (SAB Not under the Parmess criteri Act Rel. No. 23 Note: In part 4i), if you find the given URI link does not work, Goople for the term "bill and hold" from any other reference their URLs) in your answer You must answer all parts I through to 4, and must not esceed 3 pags of typing using single-space and medium from any other websites and cite them (i.e. Simulation Question 4-3 This simulation guson h