Ford Motor Company finances vehicles for both consumers (purchasers) of their automobiles and dealers of their automobiles (to finance inventory in showrooms and car lots).

Using Ford's 2017 Annual report (found below) and locate Note 10: Financial Services Finance Receivables. Summarize what you find there. Include a discussion of the various sections of the note and what the relative size of amount Ford is owed by consumers vs dealers.

In measuring net income, Bob applied the following policies:

1. Revenue was recognized when cash was received from customers. Many customers paid in cash, others had credit terms allowing them to pay after 30 or 60 days. Customer rentals were all paid or billed when the equipment was returned if borrowed for less than 10 days, otherwise rentals were billed every 15 days.

2. Bob set his own salary at $75,000, which Sheila agreed was reasonable. Bob also paid his wife and two daughters $25,000 each, although they did not work regularly in the business.

3. Bob charged his personal automobile expenses to the company's Supplies Expense

4. Bob purchased some additional rental equipment, valued at $200,000, shortly after taking over the business. This rental equipment was expected to last five years under normal conditions. Bob included the entire expenditure in the first year calculation of net income.

Instructions:

1. Discuss the fairness and reasonableness of each of these income-measurement policies. (These policies do not need to conform to GAAP, but they do need to be fair and reasonable - as that is what the parties agreed to)

2. Do you believe the net cash flow of the business was higher than lower than the net income presented by Bob? Why or Why not?

Answer rating: 100% (QA)

1 Accounting of various revenues and expenses are recorded as per the Accrual Basis Cash Basis is not followed in accounting But in the given case the ... View the full answer