episode 08 discussion

1.	In the Case Video, Andrew wanted to use a lower estimate for warranty expense. This is because he wanted to increase net income and make the online gaming division look better. In certain cases, a manager might want to overstate, rather than understate, warranty expenses. Why?

2.	Visit the U.S. Securities and Exchange Commission Web site, and read a speech on expense recognition by Arthur Levitt, Chairman of the Securities and Exchange Commission. In his speech, Levitt outlines three situations in which companies recognize excessive expenses one year, allowing them to show greater incomes in future years. What are those three situations?

3.	Incorrect application of the revenue recognition principle can be very damaging to a company's reputation, and may lead to lower stock prices. Read about Sybase's problem with recognition of revenue in 1997 in the article entitled Sybase's Japan Accounting Glitch Could be a "Black Eye". What caused Sybase's revenue to be overstated that year? Does this appear to be a common problem? Refer to specifics from the article in your answer. How much 1997 Japanese revenue was incorrectly recognized? Was that significant relative to Sybase's 1997 Japanese revenue?

4.	What revenue recognition policies do major airlines follow? Visit Delta Airlines' Annual Report Web page to find out.

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