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The case project is IC14-2 (Finishing International Enterprises) on page 954 (textbook Vol 2). Please type your report in double space (at least three pages). The project is due on Nov 19 at the beginning of class.

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Robert · Accepted Answer

FIE Accounting Policy report
FIE Accounting Policy report 
 
1  

Case Project 
Finishing International Enterprises (FIE) 
Tony and Chen 
Report on Accounting Policies and Other Important Issues 
Date: 11-19-2012
FIE Accounting Policy report 
 
2  
 
Objective: 
This document provides a report to Tony and Chen outlining recommendations on 
accounting policies and other important issues at Finishing International Enterprises (FIE). 
Each part of the problem statement has been analysed and sub divided into three sections 
namely Observation, Gap from GAAP and Recommendation.
Accounting Areas Covered: 
1. Warranty Liability 
2. Insurance Expense 
3. Debt at Non Market Interest Rate 
4. Asset Retirement Obligation (ARO) Accounting 
5. Preferred Shares 
6. Debt to Equity Ratio
Detailed Analysis: 
1. Warranty Liability (Please refer to the problem statement Point No 1)
Observation – FIE business model and product line is not unique. They are pretty old 
in this business. They have fairly estimated the warranty cost (average 
$380/machine) and this cost is highly probable. FIE is using cash basis to record 
warranty expenses.
Gap with GAAP - According to GAAP if the expense is probable and can be fairly 
estimated one should use the accrual method of accounting.
Recommendation – FIE should do some historical data analysis for estimation of 
warranty expenses and start using accrual method of accounting so as to comply 
with GAAP.
2. Insurance Expense (Please refer to the problem statement Point No 2)
Observation – FIE knows the exact insurance deductible amount ($250,000). 
Additional issue with FIE here is its implication in chemical spill. It will not send right 
signal in market and will raise question marks on the corporate social responsibility.
FIE Accounting Policy report 
 
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Gap with GAAP - According to GAAP an item should be recognized if the future 
benefit or loss from the item is probable and can be estimated reliably.

Announcement Subject Case Project Saved By ********* Message The case project is IC14-2 (Finishing International Enterprises) on page 954 (textbook Vol 2). Please type your report in double space (at...

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