A1-10 Impact of Differing Objectives: Privately owned BlueScreen Corporation is

Question

A1-10 Impact of Differing Objectives:

Privately owned BlueScreen Corporation is primarily a retailer of computer equipment for individuals and small business. The effective cost of computer equipment and peripherals, at both the retail and manufacturing levels, has been declining rapidly for many years and shows every sign of continuing that decline.

The company also develops software intended for small business applications—that is, for companies with up to 500 employees. he software is sold in BlueScreen’s own stores as well as through the company website. However, most sales come through general software distributors (e.g., download.com).

For sales through the distributors, purchasers can obtain a 30-day limited-feature trial by paying an initial fee equal to 10% of the retail price of the software. If the customer decides to buy after 30 days, the trial fee is credited to the total cost of the purchase. On average, about two-thirds of the trials result in final purchase. Software development is a continuous process, including updates of existing software. Some of BlueScreen’s accounting issues are as follows:

1. What inventory methods should be used for retail merchandise in its stores and warehouses.

2. How the software development cost should be accounted for.

3. How the company should account for tangible capital assets, such as the warehouse building (which it owns), stores (which are leased), and store fixtures.

4. All of the company’s personnel—retail, managerial, and software development—are sent annually to professional development programs to keep their skills at the cutting edge of performance. he company spends many millions of dollars on these programs each year.

5. he company opens an average of 20 new stores each year. About five stores are closed each year.

Required: Using the chart below, indicate the accounting policies that the company should choose for each of these issues under each of three different primary financial reporting objectives:

1. Earnings maximization

2. Cash flow prediction

3. Earnings minimization

(This is what I have so far, but I'm pretty sure it's all wrong. I've consulted my textbook but I'm having issues!)

Explanation / Answer

Answer:

Under Cash Flow Prediction the accounting and reporting of transaction should be preferrably on actual basis;

Issue 2; Software development cost should be accounted for on actual basis under operative activities.

Issue 3; Account the asset items under investment activities and at the actual value paid.

Issue 4; Since, the nature of expenses is for all years therefore, account them on actual expenses incurred and paid under operating activities.

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