Cutting Edge is a monthly magazine that has been circulating in the market for eighteen months. Currently the circulation has reached 1.4 million copies. Negotiations are currently underway to get a bank loan to renew its facilities. They are now producing close to full capacity and hoping to grow an average of 20% per year for the next 3 years. After reviewing the Cutting Edge financial statements, Gary Hall, section bank employee loans, indicating that loans can be given to Cutting Edge only if they can increase the current ratio and decrease the debt to equity ratio certain level. Alexander Popov, manager of the Cutting Edge company, has made a plan to meet these requirements. Popov stated that advertising promotions can be immediately started to increase their circulation. Prospective customers will be contacted after buying other magazines by mail. The ad campaign includes: 1. Offer to subscribe to Cutting Edge at a price ¾ of the normal price 2. Special offers to all new customers to receive the latest world map at any time requested with a warranty price of $ 2.00. 3. An unconditional guarantee that each customer will receive a refund in full if not satisfied with this magazine. Although the offer of a full refund is risky, but Popov states that only a few people will ask for a refund after received half of the magazine's editions. Popov noticed that the company Other magazine publishers have tried this sales promotion technique and experienced success big. Their average cancellation rate is 25%. On average every company increase their initial circulation threefold and in the long run increase their circulation double the circulation before promotion. In addition 60% of new customers are also expected will make use of the prize map. Popov felt confident that the increase in customers from This ad promotion will increase the current ratio and decrease the debt to debt ratio equity. You are a Cutting Edge controller and you have to give an opinion proposed plan: a. When is revenue from the new subscription must be recognized b. How would you classify the estimated sales returns generated by This unconditional warranty? c. How the prize map must be recorded. And what is the estimated claim for the prize is an obligation, explain. d. Whether the proposed plan will achieve the goal of increasing the current ratio and reduce the debt to equity ratio?
Cutting Edge is a monthly magazine that has been circulating in the market for eighteen months.
Currently the circulation has reached 1.4 million copies. Negotiations are currently underway
to get a bank loan to renew its facilities. They are now
producing close to full capacity and hoping to grow an average of 20% per year
for the next 3 years.
After reviewing the Cutting Edge financial statements, Gary Hall, section bank employee
loans, indicating that loans can be given to Cutting Edge only if
they can increase the
certain level.
Alexander Popov, manager of the Cutting Edge company, has made a plan
to meet these requirements. Popov stated that advertising promotions can be immediately
started to increase their circulation. Prospective customers will be contacted after buying
other magazines by mail. The ad campaign includes:
1. Offer to subscribe to Cutting Edge at a price ¾ of the normal price
2. Special offers to all new customers to receive the latest world map
at any time requested with a warranty price of $ 2.00.
3. An unconditional guarantee that each customer will receive a refund
in full if not satisfied with this magazine.
Although the offer of a full refund is risky, but Popov
states that only a few people will ask for a refund after
received half of the magazine's editions. Popov noticed that the company
Other magazine publishers have tried this sales promotion technique and experienced success
big. Their average cancellation rate is 25%. On average every company
increase their initial circulation threefold and in the long run increase their circulation
double the circulation before promotion. In addition 60% of new customers are also expected
will make use of the prize map. Popov felt confident that the increase in customers from
This ad promotion will increase the current ratio and decrease the debt to debt ratio
equity.
You are a Cutting Edge controller and you have to give an opinion
proposed plan:
a. When is revenue from the new subscription must be recognized
b. How would you classify the estimated sales returns generated by
This unconditional warranty?
c. How the prize map must be recorded. And what is the estimated claim for the prize
is an obligation, explain.
d. Whether the proposed plan will achieve the goal of increasing the current ratio and
reduce the debt to equity ratio?
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