Business Finance
ACC 305 Pace Effects of Impairment Issues & Financial Considerations Memo

ACC 305

Pace University


Question Description

I’m studying for my Accounting class and need an explanation.

answer the question

1) what the effect might be for reflecting these "impairment issues" into the March 31, 2020 first quarter income statement,

2) other financial considerations that management might take into account when deciding on this potential action. and the grading rubric is 1. 20 points for appropriately i) identifying and articulating the relevant fact issues, ii) identifying and summarizing the relevant GAAP applicable to the issues, and then iii) quantifying the GAAP effect "on a macro basis" that needs to be reflected in the financial statements. 2. 5 points for professionalism (i.e. appropriate grammar, sentence structure, etc.). 3. As noted above, each student will be required to prepare their own individual and unique memo which will be scanned and audited for unauthorized plagiarism, duplication, etc. Memos that are found to have duplication and/or plagiarism will be scored "no credit".

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ACC 305 Spring 2020 Case #1 – Impairments, etc. You are the current "up-and-coming" corporate controller for a publicly traded company called Spartan Cruises, Inc. and as such, report to the CFO Tom Harris who in turn reports to the CEO Michele Lowry. Spartan Cruises, headquartered in Miami, offers upscale cruises primarily to US citizens out of three ports as follows: 1. 15 ships operating out of Miami with Caribbean itineraries that are very profitable. 2. 10 ships operating out of Barcelona Spain with Mediterranean itineraries that are modestly profitable. 3. 5 ships operating out of Sydney Australia with Australian coast and New Zealand itineraries that are effectively break even from a financial perspective. All 30 ships cost approximately $150.00 million/ship and are depreciated on a straight line basis over 10 years (with no residual or salvage value) – the 15 operating out of Miami are relatively new, the 10 operating out of Barcelona are 5 years old, and the 5 ships operating out of Sydney are much older and fully depreciated. In addition, Spartan Cruises had previously signed contracts to purchase 3 additional ships at $150.0 million/ship that were scheduled to be delivered to Miami in mid-2022 but as of today, construction has not commenced. As part of the contract signing process for each ship, Spartan Cruises made a good-faith non-refundable deposit of $20.0 million/ship and recorded a combined asset of $60 million on their balance sheet. Late last week, CFO Tom and CEO Michele attended a high-level economic summit in New York City and during the conference, credible market experts predicted that the cruise industry is about to go through permanent economic contraction and as such, will no longer enjoy the demand and revenue levels it enjoyed in recent years. Specifically, the experts predict that cruise industry revenues will be 70% lower than what the industry was otherwise anticipating over the next five years due primarily to the pandemic vulnerability passengers are exposed to as evidenced by the recent well-publicized coronavirus (something Spartan Cruises was fortunate to totally avoid). On the private plane ride back from New York, Tom and Michele discussed how Spartan Cruises was going to adapt to this new reality given that the Barcelona & Sydney operations will probably become very unprofitable as incoming cash flow from cruise sales is expected to effectively evaporate. Tom and Michele are considering discontinuing the Barcelona and Sydney operations, and cancelling the orders for the 3 new ships, and have asked you to quantify on a macro perspective what the financial impact would be if the Spartan Cruises Board of Directors decided to move in that direction and announce these discontinued operations before the end of the March 31 first quarter. Tom and Michele will be meeting with the Board of Directors on Tuesday, March 31 and as such, Tom has asked that you prep him on this matter by preparing a one-page business memo to his attention discussing your thoughts on: 1) what the effect might be for reflecting these "impairment issues" into the March 31, 2020 first quarter income statement, and 2) other financial considerations that management might take into account when deciding on this potential action. ...
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Final Answer

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Financial memorandum
To: CFO Tom Haris
From: corporate controller.
Subject: Effects of the impairment issues and financial considerations taken for the action.
The department of finance and budget compiles and records the revenue and profit of our
organization. This memo concerns the impairment issues, quarterly income statement and
financial consideration that the management might consider when deciding the potential action
that will help to control the issues that affects the operation of our organ...

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