1. A small publishing company signs an aspiring Olympic gymnast to write a book. The company pays the gymnast $500,000 to sign plus future book royalties. A note to the company's financial statements says that "prepaid expenses include $500,000 in author signing fees to be matched against future expected sales". Is this accounting for the signing bonus acceptable? How does it affect your analysis?
2. As a new accounts payable manager, you are being trained by the outgoing manager . She explains that the system prepares checks for amounts net of favorable cash discounts, and the checks are dated the last day of the discount period. She also tells you that checks are not mailed until five days later, adding that "the company gets free use of cash for an extra five days, and our department looks better. When a supplier complains, we blame the computer system and the mailroom." Do you continue this payment policy?