Interstate Transport, Inc.
1. After having some losses because of the difficult situation in the economy on the financed part of its trailer sales we increase the allowance for bad debt $1 500 000 so now it has a $10 000 000 value, affecting the earnings. After analyzing the balances in the parts sales for the more than 6 months category we concluded that only $1 500 000 is collateral, so $2 650 000 was send to allowance. According to NIF c-3 the allowances reduce the earnings result by increasing the sales expenses and reducing the current assets increasing the allowance.
2. For the inventories we switched from LIFO to FIFO, we can do this because generally valuations should be made by FIFO but we didn’t do that and we had a LIFO reserve that includes the difference between the two and now we are going to eliminate that reserve vs COGS.
3. We reduced the depreciation expenses in our facilities taking into account NIF c-6, in which we check the life period of the facilities at the ending of the operating period. We reject the idea of converting the entire company to straight-line depreciation method given that our expectations of future earnings didn’t change.
4. Finally we reevaluate and reduce the spare parts inventory creating an allowance for spare parts, generating sales costs.
CEO
The idea of giving stock options instead of the payable bonuses would be good for both the company that will have more cash flow and the executives will have options with a value of $780 000 and on the bonuses balance we have $700 000, they would be increasing their revenues on a long term basis. They would accept the valuation made by the professor cause the Black-Scholes model is widely accepted for valuing options if they don’t understand it I would explain the principles of the model.
VP of marketing
The decision made was to sell the tankers to Pennsylvania Waste