CASE STUDY: PolyMedica Corporation (A) Northwood University DeVos Graduate School of Management September 17‚ 2012 PROBLEM STATEMENT PolyMedica’s method of capitalizing direct-response advertising expenditures rather than expensing the cost is under investigation by the U.S. Securities and Exchange Commission (SEC) and has caused concern for investors who are questioning the legitimacy of this practice. ANALYSIS
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Caz Polymedica(A) Q: Explain difference between an asset and an expense A: Assets are resources controlled by the entity as a result of past events and from which future economic benefits are expected into next accounting periods. Expenses are costs related to running the business‚ in order to earn revenues. An "expense" is that economic portion of an asset that has been used up within the accounting period. Q: Explain the role of advertising in the company’s customer acquisition strategy
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under fixed and current assets‚ which are mostly part of the balance sheet. Any selling or buying of assets is shown as part of ‘cash from investing’ activity. Assets are directly or indirectly related to the future revenue generation for the firm. PolyMedica focused on direct to customer strategy to increase its customer base. Thus it focused on direct response customer right from 1996 to reach a larger portion of Medicare eligible patients to market their products. This specifically was a pretty successful
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sold. An expense is shown to be something that is an outflow of cash that would be referenced as an intangible item. Advertising has traditionally been listed as an expense. It is very difficult to show the tangibility of what advertising is worth. PolyMedica ’s reporting of direct response advertising as an asset and not expense raised issues with the Securities and Exchange Commission (SEC) because of the strict criteria needed to be put in place in order for a company’s advertising to be able to be
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1 What is an Asset? An asset is an item that a company owns. Assets are divided into three basic groups: capital assets‚ current assets and intangible assets. Capital assets are typically owned for the long term and include buildings‚ land‚ vehicles and manufacturing equipment. Current assets are items that can quickly be converted to cash‚ such as actual cash‚ accounts receivable‚ inventory and investments such as bonds and stocks. Intangible assets are items that cannot be physically touched‚
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Financial Statement Analysis Case Discussion Questions CASE: The Case of the Unidentified Industries - 2006 The questions are in the case. However‚ the following information might be helpful. 1. For purposes of this case the loans of the commercial bank are classified as accounts receivable and the deposits as accounts payable. 2. Unlike most business done on a credit basis where $1 of revenue creates a $1 accounts receivable‚ in advertising $1 of revenue creates $1/15% = $6.67 of accounts
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Text and Cases Thirteenth Edition Robert N. Anthony Ross G. Walker Professor Emeritus Graduate School of Business Administration Harvard University David F. Hawkins Lovett-Learned Professor of Business Administration Graduate School of Business Administration Harvard University Kenneth A. Merchant Deloitte & Touche LLP Chair of Accountancy Leventhal School of Accounting University of Southern California McGraw-Hill Irwin Contents PARTI FINANCIAL ACCOUNTING 1 Chapter 1 The
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Securities Outline INTRODUCTION THE REGULATORY FRAMEWORK • Premise of securities regulation is that mandatory disclosure (as well as antifraud provisions) will equip securities investors and their advisors with the information to move capital to its optimal uses. • Purposes of securities regulation: o Assuring that when securities are created and offered to the public‚ investors have an accurate idea of what they are purchasing an interest in‚ and how much their interest
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