Dennis Stovall Running Head: Case Study Part 1 Abstract This writing focuses on a major world manufacturing company and the accounting methods it uses to maintain its position as a leading automobile manufacturing corporation in the world today. The Toyota Motor Corp.
Errors made in preparing the financial statements: The recognition of the season ticket sales as revenue in Because Lakeside has not provided these fans with any service yet the gamesthe sale of the season tickets does not result in revenue in The contract with the advertisers required Lakeside to average 2, fans per game.
Because it averaged only 1, the revenue should not be recorded.
The treatment of the player contracts. Under the economic entity assumption, the personal affairs of the owner of a business should not be intermingled with those of the company. The original financial statements grossly overstate the income of the company and its assets.
The information regarding season ticket revenue does not provide reliable information to the outsider. Reliable information represents what it claims to represent. It should not be recognized as revenue in the current year. Revenue must be collectible to be recognized.
Since the company knows that the revenue is not likely to be collected, it should not be recognized. Because you are aware of these errors, it is your responsibility to share the revisions with the other owners as well as the bank. It appears that the controller has made a deliberate attempt to overstate the assets and income of the business for the express purpose of obtaining an extension of the loan.
Both the other owners and the banker rely on the statements in making decisions, and it is your responsibility to inform them of any major deficiencies in the statements.
The owners of the company may benefit in the short term, because the bank may be more likely to give them a loan based on the original financial statements.
All outsiders are harmed, because the financial information they receive does not represent the economic activity of the firm. The owners of the company will benefit because outsiders will evaluate the company more favorably based on the original financial statements than the revised statements e.
The bankers will be harmed if they are not aware of the correct financial statement numbers, because they will assess the risk of the firm based on the incorrect numbers and will use a lower interest rate on the debt than they would if the risk more accurately reflected the future cash flow.
Stockholders who currently own shares of stock may not make the correct decisions about holding the stock. Potential stockholders may make the wrong decision about purchasing the stock.
The company may lack the resources to pay the claims of the creditors the notes payable and the liability to the parent club. The interests of the shareholders are in conflict with the interests of the creditors of the company. The shareholders appear to want to withdraw cash from the company.
The creditors would prefer that the company keep its cash to pay debts.
Company management is responsible for the accuracy of the financial statements. The original financial statements are clearly presented in a way that is biased toward the owners. Help us make our solutions better Rate this solution on a scale of below We want to correct this solution.Running Head: Case Study | Part 1 Case Study | Part 1 Dennis Stovall Kaplan University GB Financial Accounting Principles and Analysis Professor: Wendy Walston Achilles January 2, 1 Running Head: Case Study | Part 1 Abstract This writing focuses on a major world manufacturing company and the accounting methods it uses to maintain its position as a leading automobile .
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