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Never Flake Company provided a rust-prevention coating for the underside of new automobiles. The company advertised widely and offered its services through new-car dealers. When a dealer sold a new car, the salesperson attempted to sell the rust-prevention coating as an option. A key selling point was Never Flake’s warranty, which stated that it would repair any damage due to rust at no charge for as long as the buyer owned the car.
For several years, Never Flake had been very successful, but in 2013, the company suddenly declared bankruptcy. Company officials said that the firm had only $5.5 million in assets against liabilities of $32.9 million. Most of the liabilities represented potential claims under the company’s lifetime warranty. It seemed that owners were keeping their cars longer than they had previously. Therefore, more damage was being attributed to rust.
Discuss what accounting decisions could have helped Never Flake to survive under these circumstances.
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Chapter 3 Solutions
Principles of Accounting
- Cooper Audio Systems produces car sound systems. Estimated sales (in units) are 45,000 in April, 38,000 in May, and 36,500 in June. Each unit is priced at $75. Cooper wants to have 40% of the following month's sales in ending inventory. That requirement was met on April 1. Each sound system requires 4 speakers and 10 feet of wiring. Speakers cost $6 each, and wiring is $0.50 per foot. Cooper wants to have 25% of the following month's production needs in ending raw materials inventory. On April 1, Cooper had 30,000 speakers and 95,000 feet of wire in inventory. What is Cooper's expected sales revenue for May?arrow_forwardGeneral accounting questionarrow_forwardNeed answerarrow_forward
Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage