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Panache, Inc. is a small specialty automobile manufacturer. The company’s long-time controller,
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Panache, Inc. is a small specialty automobile manufacturer. The company’s long-time controller, Celia Brown, retired on January 10, 2011, at the age of 88, and the president of the company, Andrew Cartwright, has hired you to be the company’s new controller.

Andrew would like to take Panache public in the near future, which will require audited financial statements. He has retained the public accounting firm of Booker and Helwig to audit the 2010 financial statements as a preliminary step. He knows that Celia was not always up to date on current issues, and he has asked you to review all of the company’s accounting policies and procedures. Your first task is to identify problem areas and make any corrections needed before the audit begins.

Andrew wants to be kept informed at all times, and when any problems are identified, he wants to be made aware of the problem as well as your solution.

This Week's Scenario:

You’ve spent your first week on the job getting familiar with the company’s products and processes. It’s time to dig into the company’s financial statements, and you decide to look at the company’s investment accounting first.

The company purchased several securities in 2009, including 30,000 of the 100,000 outstanding shares of Lion Tire. Lion Tire supplies the tires used on all of Panache’s vehicles. Mr. Cartwright was asked and agreed to become a member of Lion Tire’s board. You find the detailed records for the investment transactions and the financial statements in the Lion Tire file. During your review you find that all of the investment transactions were properly recorded and reported except for the investment in Lion Tire.

Click here to view the Lion Tire file.

This Week's Task:

Based on your analysis of the Lion Tire transactions, draft the journal entries that should have been made in an Excel spreadsheet. Then, write a memo to Andrew explaining the accounting principles that should have been followed for Panache’s investment in Lion Tire. In your memo:

  • Illustrate how the investment will be reported in the company’s balance sheet and income statement.
  • Explain how and why the accounting for this investment is different from the accounting for Panache’s other investment securities.
  • Devise three ways, based on past practices, that Panache can improve its future accounting principles for the Lion Tire transactions. Use examples from the Excel spreadsheet when necessary.

Submit your memo as a four-page, double-spaced Microsoft Word document. Include your journal entries as an attachment to the memo. Cite any sources you use using correct APA format on a separate page.

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