Toys, Inc., is a 20- year- old company engaged in

Toys, Inc., is a 20- year- old company engaged in the manufacture and sale of toys and board games. The company has built a reputation on quality and innovation. Although the company is one of the leaders in its field, sales have leveled off in recent years. For the most recent six-month period, sales actually declined compared with the same period last year. The production manager, Ed Murphy, attributed the lack of sales growth to “the economy.” He was prompted to undertake a number of belt-tightening moves that included cuts in production costs and layoffs in the design and product development departments. Although profits are still flat, he believes that within the next six months, the results of his decisions will be reflected in increased profits. The vice president of sales, Joe Martin, has been concerned with customer complaints about the company’s Realistic line of working- model factories, farms, and service stations. The moving parts on certain models have become disengaged and fail to operate or operate erratically. His assistant, Keith McNally, has proposed a trade- in program by which customers could replace mal-functioning models with new ones. McNally believes that this will demonstrate goodwill and appease dissatisfied customers. He also proposes rebuilding the trade- ins and selling them at discounted prices in the company’s retail outlet store. He doesn’t think that this will take away from sales of new models. Under McNally’s program, no new staff would be needed. Regular workers would perform needed repairs during periods of seasonal slowdowns, thus keeping production level. When Steve Bukowski, a production assistant, heard Keith’s proposal, he said that a better option would be to increase inspection of finished models before they were shipped. “With 100 percent inspection, we can weed out any defective models and avoid the problem entirely.” Take the role of a consultant who has been called in for advice by the company president, Marybeth Corbella. What do you recommend?

Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...