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Essay / Research Paper Abstract
This 3 page outlines the accounting issues that Dell has faced where it has been accused of using warranty accruals and the accounting for warranty liabilities to manipulate their earnings figures. The bibliography cites 5 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEdellprob.rtf
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Unformatted sample text from the term paper:
Wall Street had already reduced; $14.4 billion compared to the expected estimate of $14.9 billion (, Krazit, 2007). However despite the fall in revenues the profits were above the estimates
at $0.30 per share when they were expected to come in at $0.01 lower Krazit, 2007). Revenue and earnings per share were down on the same period for the year
before. The year has been one where there have been difficulties as well as the announcement that there have been some accoutring irregularities "into certain accounting and financial reporting matters"
(Warranty Week, 2007). To understand the issues the company itself and its patterns of accounting need to be understood. The company makes
it money from two main areas, the sale of the goods and the sale of extended warranties. When computers or equipment is sold there is usually a warranty with that
equipment. When a company is selling goods that have a warranty it is essential that they account for the potential claims which may materialize when they are called on
to honour that warranty. The company will not know in advance how much they are going to have to pay out to satisfy warranty claims but there is the potential
to make an accurate estimate with the past statistics and the knowledge of the likely fault rates associated with the goods they are manufacturing and selling.
The second type of income comes from the sale of extended warranties; these create potential liabilities over a period of time, usually 3 years. The accounting
standards and convections state that income should be recognised in the period that it is earned. For extended warranties that are over several years, the money is not earned until
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