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Pastimes : Austrian Economics, a lens on everyday reality

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To: Wildstar who wrote (151)	1/25/2003 1:17:58 PM
From: Don Lloyd	Read Replies (1) of 445

Wildstar, A new accounting puzzle -- The company, The Dawn of a New Century, Ltd., is a wholesale supplier of undetectable counterfeit $100 Federal Reserve Notes to organized crime. Sold only in volume, each counterfeit $100 note produces $50 in revenue when sold at a fifty percent discount to its face value. Since the company is partly owned by organized crime families, accurate accounting is vital, and all profits are distributed to the owners as dividends at the end of the year. In 2002, the company realized $50M in revenue from the sale of 1M counterfeit $100 Federal Reserve Notes. The company has only two categories of costs, materials and labor compensation, both variable costs. Material costs consist of $1 in paper and $1 in ink for every note fabricated. Labor costs consist entirely of allowing the engravers to keep one half of the notes that they produce. Question #1 - How much of the $50M in 2002 revenue is distributed to the owners in dividends? Question #2 - Following GAAP and FASB guidelines, what number is to be entered on the total wage compensation expense line? Regards, Don

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