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GAAP Violations

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Write a memorandum to Francis Bacon explaining how each practice violated GAAP and how each type of transaction affected reported income, financial position and cash flows.

Attached are the files and statements.

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Solution Summary

This solution explains in detail how each practice violated GAAP and how each type of transaction affected reported income, the financial position, and cash flows.

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It is against BM policy for an Expert to complete an assignment, so I can't put this into memo form for you. Here are the points you want to make, along with what each point affects.

1. Channel stuffing - this violates GAAP because it overstates income and cost of goods sold. The assets are overstated due to overstated A/P and income and COGS on the income statement are overstated, creating an overstated net income. Channel stuffing is illegal. In addition, the company didn't realize an allowance for returns (a current liability), even though returns were expected. This is also a violation of GAAP because returns from a certain percentage of retail outlets were expected, so the current liabilities were understated. Channel stuffing would affect net income on the statement of cash flows.

2. Vendor dinging means that the company claimed the ...

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