Consider the article "Adenosine Therapeutics LLC: Accounting for a Different Compensation Method" (Evans & Haskins, 2007). Next, using outside sources that you may seek and your professional experience, develop a paper concisely answering the following questions:
(A4.1) What is the basic accounting research question that Adenosine Therapeutics's accountants need to answer with respect to the firm's compensation method?
(A4.2) What accounting standard(s) must they consider when answering the question?
(A4.3) What conclusion do you come to with respect to the research question?
(A4.4) What knowledge, estimates, or assumptions did you use in arriving at your conclusion?
Evaluating Compensation Methods
Like any other accounts, how salary-related liabilities and expenses will affect the quality of a company such as Adenosine Therapeutics LLC's financial statements. This quality, in turn, will affect the decision making of financial statement users such as investors, labor unions and creditors. Hence, the accounting standards to be used in measuring, presenting and reporting these salary-related liabilities and expenses are of vital importance.
Given Adenosine Therapeutics LLC practice of accruing salary increases and booking payment only and only if a milestone event is reached, the basic accounting research question that Adenosine Therapeutics's accountants need to answer with respect to the firm's compensation method is whether the accounting method to record this compensation method is accurate and above all else, generally accepted accounting principle.
At first glance, Adenosine accountants are complying with GAAP in recording the company's compensation method. Specifically, payroll accrual recognizes payroll expense for work performed in a given month but not paid until the occurrence of a milestone event. This method fully satisfies the matching principle. However, a deeper analysis ...