Junior Accounting

2010 CASE STUDY

JACT

DECA U 2010

Junior Accounting (JACT) – Spark Electronics

You are to assume the role of accounting advisor to SPARK ELECTRONICS Inc., a Canadian corporation specializing in the wholesale of technological products and services to various retail outlets. The CEO of Spark, Hugh Voltage, has approached you for accounting related advice in light of current issues that the firm is facing.The company is in the process of expanding to meet the growing needs of its evolving market and will need to obtain various loans and lines of credit to finance receivables and inventory. One of the important factors related to Spark’s success will be its ability to obtain a competitive interest rate which is dependent on the firm’s ability to ensure its liquidity ratios are close, if not better, than industry averages. Financial Ratios for the company and industry have been summarized below.

Ratio / 2008 / 2009 / Industry Average
Current Ratio / 2.4:1 / 2.5:1 / 3:1
Quick Ratio / 0.75:1 / 0.85:1 / 1:1
Accounts Receivable Turnover / 10 times / 9.5 times / 15 times
Inventory Turnover / 3 times / 2.5 times / 6 times

In your research you have gathered the following additional information;

  • No discounts are provided by Spark for early payment – credit terms to customers are net 60 days regardless of order size, payment type and date.
  • It is company policy to pay accounts payable net 60 days regardless of payment terms
  • To ensure that its customers will have maximum selection, it is Spark’s policy to hold large amounts of inventory on hand and subsequently offer sales/discounts to get rid of aging accumulated inventory

Your role will be to offer suggestions that the company might take to improve its liquidity. During your discussions with Hugh, he eluded to the fact that the firm is considering taking “advantage” of its long-lasting relationship with its auditors to “adjust” its financial numbers and liquidity ratios in the current year. The firm believes this approach is justified given the long-run benefits to users of obtaining a low-interest rate and is willing to “re-adjust” the numbers back in the following year once financing has been secured.

You have scheduled a meeting with the executives of Spark to discuss the implications of the aforementioned and your recommendations.

JUDGE EVALUATION RUBRIC

Junior Accounting

(please use scantron)

Little/No Demonstration / Below Expectations / Meets Expectations / Exceeds Expectations / Judges
Score
STATEMENT OF THE PROBLEM
  1. Exhibits an understanding of liquidity
  2. Exhibits an understanding of the company’s liquidity position
/ 0-1-2
0-1-2 / 3-4-5
3-4-5 / 6-7-8
6-7-8 / 9-10
9-10 /
ANALYSIS
  1. Analyzes the company’s credit procedure
  2. Analyzes the company’s inventory policies
  3. Discusses the ethical issues involved with re-adjusting the company’s financial numbers
  4. Gives recommendations to improve the company’s liquidity position
  5. Makes a decision on an alternative that will work the best for the company
/ 0-1-2
0-1-2
0-1-2-3-4
0-1-2-3-4
0-1-2-3-4 / 3-4-5
3-4-5
5-6-7-8
5-6-7-8
5-6-7-8 / 6-7-8
6-7-8
9-10-11-12
9-10-11-12
9-10-11-12 / 9-10
9-10
13-14-15
13-14-15
13-14-15 /
PRESENTATION
  1. Presents information in a clear and professional manner
  2. Presents analysis and recommendations in an organized and well though out manner
  3. Overall performance: appropriate appearance, poise, confidence, team unity presentation technique etc.
/ 0-1
0-1
0-1 / 2-3
2-3
2-3 / 4
4
4 / 5
5
5 /

TOTAL POINTS (MAXIMUM 100):