1) Adjust for shipments to Distributors--Read the Statement of Significant Accounting Policies-under revenue recognition.  Will probably need 2 entries here.

2) Deferral of Warranty Revenue
Need to know how much Deferred warranty revenue there is-
how much current/noncurrent
The current amount is disclosed in a footnote--you will need to find it.
the long term portions-more difficult--
Hint--Determine the Balance sheet equation before restatement--total equities (liabilities, long term debt, minority interest, etc.), total assets, compare--the unknown will be the deferred warranty revenue before the restatement.  then compare to the restated amount, and you will know the amount of the restatement. (actually the amount can be determined easier than this, but this process "proves" the answer.)

3) Deferral of other revenue--not to hard to figure this one out.

4) current asset writeoffs-
Inventory obsolence--not all of the write-down/writer-off was made to cost of goods sold; some was made to operating expenses--
Do a reconciliation of operating expenses as presented in Exhibit 1 with the amount of operating expenses in the restated income statement for 1988. (operating expenses will be the net of everything to get from gross profit to net loss.)

5) Additional warranty expense--

6. an unexplained adjustment of sales/cost of sales was made-how much?
Look at the Sales in Exhibit 1. reconcile with the Restated sales in the Income statement.  How much of a unexplained change was there in sales? Do the same with cost of goods sold.  The unexplained change should be the same in both reconciliations.

• Prepare the cash flow statement
• How much was the cash flow from operations?

• Why was there negative operating cash flows?
• Is it reasonable to expect increases in inventories and receivables if there are increases in Sales?
• Are Regina's increases in inventories and sales reasonable in amount?
• Analyze Exhibit 2--look at the percentage increase in sales, not only from year to year but quarter to quarter. What level of Receivables and inventory would you project at 6/28/88 based on exibit 2?
• Compute the following:
• Percentage increase in :  Sales, Receivables, Inventory
• Average collection period
• Average days sales in inventory
• Inventory turnover
• Receivables turnover

• Do you think that the increases in accounts receivable and inventories are "real?"
• Could Accounts receivable and inventories be used to manipulate reported income?
• What's been happening to Accounts payable over the same time period? 
• What's the relationship between accounts payable and inventory?
• How should sales returns be accounted for?
• Why did Regina's management hide sales returns?

• What is the proper classification of the equity securities purchased by K-R during the year?  Of the three possible classifications, could all three be viable for these equity security purchases?
• Footnote disclosure should address how fair value is determined for the securities.

• The partial balance sheet should indicate the amounts for:
• Current assets
• Cash and short-term investments (this is the reporting convention chosen  by K-R.)
• Marketable securities
• Investment and equity securities of others
• Show the composition of these totals. 
• How does this case affect the "other comprehensive income" and the "accumulated other comprehensive income?"

 
• Partial income statement:
• start with income before unrealized gains, taxes and accounting changes. (given in the case)
• Calculate the unrealized gains/losses on trading securities-should these go on the income statement?
• determine income tax expense--don't forget deferred income taxes.
• determine the amount of the accounting change-(remember--net of tax).  There was an adjustment of $1,790 for a "change in accounting principle."  What does that number represent?  How is is calculated? Hint:  Read carefully the last two sentences on the first page of the case concerning securities with maturities of less than 90 days.

• Read the following items related to this case:
• "Fuzzy Accounting," Forbes, June 22, 1992
• "Audit Report Shows How Far Chambers Would Go for Profits," Wall Street Journal, October 21, 1992, p. A1
• Chambers Says Ex-Accountant Raised Query," Wall Street Journal, April 24, 1992, p. A8
• New Environmental Controls Improve Outlook for Dumps," Wall Street Journal, October 2, 1987, p. 23
• "The Revenue Piles Up For An Aggressive Landfill Buyer," Wall Street Journal, February 6, 1990, p. B2
• "Turning Garbage Into Gold," Forbes, October 21, 1991, pp. 142-44
• What is the major issue in this case?
• What costs are capitalizable? Which costs should be (or have been) expensed when incurred?
• What about the matching principle?
• Is Chambers a development stage enterpise?  Why or why not?
• Compare Chambers with its competition, with special attention to these ratios:
• Fixed assets/sales
• Gross margin percentage
• G&A expense/sales
• What do you think these comparisons reveal?
• Point 1, page 186, concerning documentation--or lack thereof--would it make any difference?

• FASB No. 76 has been superceded by a later pronouncement.  Which one? How do the two statements differ?
• What has happened to the "interest rate environment since this case was written?
• enumerate the various ways that a company could retire its debt early.
• what options do Lockheed's bondholders have once the bonds are called for redemption?
• When convertible bonds are converted to equity, could or should a gain or loss be recognized?

Determine all temporary differences existing at the balance sheet date.  Determine the tax effect using the tax rates that will be in effect at the time the reversals will take place. This amount should be the balance needed in the deferred income tax account.  Then make the entry for taxes, factoring in the necessary adjustment to the deferred tax account.

• Statement of Financial Accounting Standards (SFAS) No.5, Accounting for Contingencies
• FASB Interpretation (FIN) No. 14, Reasonable Estimation of the Amount of the Loss
• AICPA Professional Standards, Volume 1, AU Section 560, Subsequent Events

• how Fast Eddie should reflect the settlement offer in its financial statements and
• whether the revocation of the offer prior to issuing the financial statements impacts the accounting.

• Is the plan compensatory or noncompensatory?  What factors are considered in making this determination?
• What is the difference between the measurement date and the grant date? Which is more relevant in accounting for a stock option plan?
• What is a restricted stock plan?  Does this plan seem to be restricted?  Why or why not? What is a variable plan?  Is this plan, or any part of it, variable?
• How is compensation expense measured?
• Hint:  2 of the 5 years will not have any compensation expense in them-which ones? Why?
• Refer to FIN No. 28--(interpretation No. 28)
• Although not a part of this case, How would FAS No. 123 differ in the accounting for stock options?

• Cash flow from operations --$96,835

• The authors use only the "regular" operating current assets/liabiliies in their cash flow calculations--Therefore, let's do the same (contrary to what we discussed earlier) i.e., don't use the affiliates accounts, notes payable in the determination of cash flows from operations.

• cash flows from operations = $91,232 for 1980.

The Warrant Feature:

Is this a publicly-held or a non-publicly- held company? 
Warrants have both a put and a call feature--What does this mean?
What pronouncement deals with warrants issued with debt?
Some other pronouncements that might be helpful:
EITF Issue No. 86-35, "Debentures with Detachable Stock Purchase Warrants."
EITF Issue No. 88-9, "Put Warrants"
ASR No. 268, "Presentation in Financial Statements of Redeemable Preferred Stocks."
EITF Issue No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"

Are the warrants debt or equity? 
What's the carrying value of the warrants at the time of the restructuring? This will figure in the calculations of the gain on restructuring.

puts and calls-
more puts and calls--
and even more...

Troubled Debt Restructuring--

This case has a restructuring that is a hybrid, or combination, or types--
A granting of an equity interest and modification of terms--
see para. 19 of FAS No. 15.
 

• A basic application of FAS No. 121
• Would the new FAS No. 144 change anything in this case?
• need evidence indicating lack of recoverability of long-lived assets--
• if so, then perform a recoverability test to see if an asset has been impaired.
• need information concerning future cash flows associated with the asset(s)
• need information concerning fair value associated with the asset(s)
• would there be opportunities to "manage" earnings via FAS No. 121? If so, explain.

• Eliminations needed for:

• any intercompany debt
• any other intercompany receivables and payables
• any intercompany sales/purchases
• any other intercompany revenues/expenses, including interest
• any profit in inventories (for '82, would be both beginning & ending)

 
• Establish minority interest

• How does Fotomat account for the sales of its franchises? (remember that Fotomat preceded FAS No. 45.)
• What criteria were established by FAS No. 45?  Does Fotomat's method meet the criteria in FAS No. 45?
• Is Fotomat matching costs and revenues appropriately? Analyze footnotes I and D.
• For the 1969 data, using notes 2, E and H, analyze the indicated transactions in terms of the probable journal entries that were or would be made.
• What's the nature of repurchased franchises?
• How about the sales to related parties in Note B: cause for concern?