Craig's Crocodiles

MEMORANDUM

DATE: January 8, 2008

TO: Nikita La Femme, Vice President of Operations, Craig’s Crocodiles, Inc.

FROM: Team 1, Athena Consulting

Vana Bonyadi

David Core

Kyle Crane

Adriana Efron

Cacie Johnson

Wenting Lu

RE: Income statement and legal issues from lease cancellation

Per your request, we have analyzed the accountancy issues with Craig’s Crocodiles, Inc.’s income statement. As such, we have also determined which point in the operation cycle is appropriate for recognizing the revenue.

In regards to the legal dispute with Pauly Property Management Services on the lease cancellation issue, we have prepared a journal entry to depict the legal liability for the company in case of a potential lawsuit.

Please contact us, Athena Consulting with any questions regarding this case or any future consulting you may require.

CRAIG’S CROCODILES, INC.

EXECUTIVE SUMMARY

Purpose: This report was created to clarify the accounting principles applicable to Craig’s Crocodiles, Inc’s issue of recognizing revenue in order to record their income statement. In addition we will interpret the legal issues and potential liability as a result of the lease cancellation.

Accounting Analysis: We have calculated the per crocodile net income to be $150. In addition, we suggest implementing a delivery or sales based method to prepare your income statement. This will yield the most accurate records possible, as it adheres to the GAAP conditions and follows the revenue recognition principle and the matching principle.

A journal entry for legal liability from the potential lawsuit arising would be recorded as a debit to lawsuit expense and a credit to estimated lawsuit liability for $9,000.

Legal Analysis: Upon reviewing the facts, Craig’s Crocodiles, Inc. owes compensatory damages to Pauly Property Management Services. There was a breach of contract and Craig’s Crocodiles, Inc. is responsible for any revenue that may be lost during Pauly’s...