Financial Accounting

NOTES TO FINANCIAL STATEMENTS

The following notes are based of the fictitious annual report for “Lucho’s Productions Company” in conformity with accounting principles established by the U.S GAAP.

Note 1: Significant Accounting Polices

Nature of Operations

Lucho’s Productions Company produces and makes high quality music for different artist around the world. It was founded in Jan 1, 2009, and it specializes on editing, remastering, producing and creating music in four main important cities, such as New York, Hong Kong, Madrid and Rio de Janeiro, allowing the company to have a really global exposure and availability throughout the world.

Use of Estimates

Lucho’s Productions Company thoroughly analyzes any necessary estimates before they get included on the financial statement as it understands that such estimates may affect financial statement reports. The main estimates calculated at Lucho’s Production Company deal directly with pension plans, useful lives of plant and equipment, and intangible assets, such as its Goodwill.

Revenue Recognition

Lucho’s Production Company revenue comes from editing, remastering, producing and creating music for different artist around the world. Revenue is recognized once work its finished for the artist and also for some contracts, commissions are earned for up to 5 years after releasing a new album, based on units sold.

Cost of Products Sold

The main cost Lucho’s Productions Company incurs in the making of the finish products is labor from the sound engineers and music producers. Direct materials, depreciation expense, distributions costs, and overhead expenses are also included in this category and fully disclosed on the balance sheet.

Selling General and Administrative Expense

Lucho’s Production Company’s selling and administrative expenses primarily consist of administrative, advertising, marketing, and selling costs. Lucho’s Production Company also incurs into research and development expenses, which are...