Financial Accounting: An Integrated Statements Approach, 2nd Edition

In groups of three or four, answer the following questions:

1. Go to the Gatorade Web site at http://gatorade.com.(a) How and why was Gatorade
   developed? (b) What is Gatorade’s share of the sports-drink market?


2. Drinks can be labeled as sports, lifestyle, or active thirst drinks. (a) How would you describe
   each of these drink labels? (b) Give an example of what you would label a sports, lifestyle,
   and active thirst drink.


3. Do you think PepsiCo’s advertising campaign will focus on Gatorade as a sports, lifestyle,
   or active thirst drink? Explain.

Marge McMaster is a certified public accountant (CPA) and a staff assistant for Tester and Morris,

a local CPA firm. The firm’s policy had been to provide a holiday bonus equal to two weeks’

salary to all employees. The firm’s new management team announced on November 25 that a

bonus equal to only one week’s salary would be made available to employees this year. Marge

thought that this policy was unfair because she and her coworkers planned on the full two-week

bonus. The two-week bonus had been given for 10 straight years, so it seemed as though the firm

had breached an implied commitment. Thus, Marge decided that she would make up the lost

bonus week by working an extra six hours of overtime per week over the next five weeks until

the end of the year. Tester and Morris’s policy is to pay overtime at 150% of straight time.

Marge’s supervisor was surprised to see overtime being reported, since there is generally

very little additional or unusual client service demands at the end of the calendar year. However,

the overtime was not questioned, since firm employees are on the “honor system” in reporting

their overtime.

Discuss whether the firm is acting in an ethical manner by changing the bonus. Is Marge

behaving in an ethical manner?

Several Internet services provide career guidance, classified employment ads, placement ser-

vices, résumé posting, career questionnaires, and salary surveys. Select one of the following

Internet sites to determine current average salary levels for one of your career options:

Accounting Information Systems

http://www.spherion.com Links to computer, engineering,

finance, marketing, and accounting

salary information

http://www.monster.com Online Career Center, with links to

salary information

http://www.imanet.org Institute of Management

Accountants salary survey

information (see Career Center)

General Electric Capital, a division of General Electric, uses long-term debt extensively. In early

2002, GE Capital issued $11 billion in long-term debt to investors, then within days filed legal

documents to prepare for another $50 billion long-term debt issue. As a result of the $50 billion

filing, the price of the initial $11 billion offering declined (due to higher risk of more debt).

Bill Gross, a manager of a bond investment fund, “denounced a ‘lack in candor’ related to GE’s

recent debt deal. ‘It was the most recent and most egregious example of how bondholders are

mistreated.’ Gross argued that GE was not forthright when GE Capital recently issued

$11 billion in bonds, one of the largest issues ever from a U.S. corporation. What bothered Gross

is that three days after the issue the company announced its intention to sell as much as $50

billion in additional debt, warrants, preferred stock, guarantees, letters of credit and promissory

notes at some future date.”

In your opinion, did GE Capital act unethically by selling $11 billion of long-term debt with-

out telling those investors that a few days later it would be filing documents to prepare for

another $50 billion debt offering?

Source: Jennifer Ablan, “Gross Shakes the Bond Market: GE Claims It, a Bit,” Barron’s, March 25, 2002.

490 Chapter 10 Liabilities

Activity 10-2

Employment ethics

Activity 10-3

Salary survey

Activity 10-4

General Electric bond

issuance