Question

Duthil Ltd. is a small public company that publishes a variety of newsletters and magazines. The CEO and founder of Duthil owns 35 percent of the shares of the company with the remainder owned by public investors. Duthil makes money through the sale of subscriptions and individual issues of its magazines and newsletters (revenue is recognized when a publication is mailed to a subscriber or an individual issue is sold) and through the sale of advertising in the publications. In late 2017, Duthil conducted a campaign to ncrease subscriptions. The company engaged a telemarketing firm to call potential subscribers in the desired demographic group. The cost of the campaign was $66,000. As a result of the campaign, several hundred new subscriptions were ob tained. The subscriptions will begin in fiscal 2018 and will generate about $75,000 for the year. All the new subscriptions are for one year but management expects that approximately 50 percent of those subscriptions will be renewed for the next year, and then for each year after that approximately 75 percent of the subscribers will re new. Duthil's year-end is December 31.

Required:
a. Who are Duthil's stakeholders and what use do they have for the financial statements?
b. What objectives of financial reporting might Duthil's management consider when preparing the financial statements? Explain.
c. How would you recommend the objectives be ranked? Explain.
d. Prepare a report to Duthil's management explaining how to account for the costs in curred to increase the number of subscribers. In your answer, be sure to consider your responses to (a), (b), and (c) above. Also consider whether the costs incurred should be classified as assets or expenses when incurred, and if considered assets when incurred, over what period the asset should be expensed. Explain your response.



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  • CreatedFebruary 26, 2015
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