Question

Please answer all the questions of this assignment.

The purpose of this assignment is to have you explain the accounting issues involved in a situation which arose in 1980s pop culture: Madonna’s contract with Pepsi. You are to use the terminology we discussed in class and your homework to analyze some of the issues raised by the article that was provided to you in class last Thursday. In the first paragraph, you should briefly describe the contract: Who were the parties? When did this occur? What were the terms of the contract? What was each party supposed to do as part of the contract? Also have a transition statement such as, “This contract raises several accounting issues…” so that the reader knows what will be coming in the next few paragraphs. In the second through fourth paragraphs, use accounting terminology to describe the issues using accounting terminology. For example:

1. What does the contract represent for each party? Is it an asset, liability, etc.?

2. Did Madonna and Pepsi each fulfill her/its respective promises?

What is each respective party’s promise called in accounting?

3. What are the accounting consequences/ramifications of what each party did in 1?

4. What journal entry could Madonna have booked on her G/L once the first commercial was completed? What entry could Pepsi have booked at the same time?

5. What occurred with regard to Madonna’s album sales as a result of the Pepsi ad? What could an accounting entry be to book her album sales?

In the final paragraph, summarize your work by noting the key concepts and the results. For example, you could begin by writing something akin to, “In conclusion, the TV commercial that Madonna made for Pepsi in 1989 did not result in the anticipated outcomes as noted contract between the two parties.” Then you could proceed to note why this is the case by briefly listing the key issues you brought up in the preceding paragraphs.

Answer 1

1. What does the contract represent for each party? Is it an asset, liability, etc.?

A balance sheet shows the assets, liabilities, and net worth of an individual or entity at a given point in time. In other words, it is a snapshot or statement of financial position on a specific date.

Components of Balance Sheet

Define Assets

Assets are items that are owned and have value. Assets would include cash, investments, money that is owed to the person or entity (accounts receivable), inventory of items for sale, supplies, pre-paid expenses, land, land improvements (buildings), equipment, etc.

Define Liabilities

Liabilities are obligations or items that are owed to others. Liabilities are the accounting opposite of assets. Liabilities would include accounts payable, accrued interest and principle on bonds issued, accrued interest and principal on mortgages outs1tanding, etc.

Define Net Worth Calculation

Assets – Liabilities = Net Worth

Net worth is the total assets minus total liabilities of an individual or entity. Net worth may also be referred to as book value or owner’s (stockholders) equity. In other words, net worth is the accounting value of an individual or entity if all assets were sold and liabilities were paid in full on a specific date.

The purpose of company financial statements is to evaluate the financial position (balance sheet), profitability (income statement), and cash flow (cash flow statement) of an entity. The balance sheet is the foundation of the entity.

Whether an investor is looking for value, growth, dividends, quality, or companies with sustainable competitive advantages, the foundation of each strategy is finding companies with a sound balance sheet. This is because the financial position of the entity affects everything it does and is able to achieve.

An entity with liquidity, low debts, and sufficient working capital has a higher probability of being successful. It can fund future needs (i.e. capital investments) to grow the company or overcome unexpected challenges. It also affects whether and how much of the cash flows can be returned to shareholders in dividends or stock buybacks.

1. Did Madonna and Pepsi each fulfill her/its respective promises?

Madonna has withdrawn from her pledge to provide some, er, satisfaction to Hillary voters, the latest disappointment in an election season full of them.

The singer had famously promised the oral sex last month — “And I am good,” she added, lest anyone question her gratification qualifications — but when a Hillary supporter, armed with a selfie of his ballot, showed up to claim the prize, he was greeted with derision

He then hung up, leaving a reporter with the ultimate hanging chad. Indeed, given that I was the only man seeking to have my ballot punched, I wanted to ask a follow-up question: Was Madonna upset that no men showed up to be rewarded for saying “I’m with her”?

What is each respective party’s promise called in accounting?

1. What are the accounting consequences/ramifications of what each party did in 1?

The general conclusions of this report are that, most of the time, accounting rules do not materially influence companies’ decisions on whether or not to invest in resource efficient assets. Rather, other factors affect these decisions, such as access to finance, tax policies, the ethics of business managers, incentive schemes for staff, the degree of short-termism in companies, and the fact that many environmental resources are either not priced or are underpriced compared to the value which society places on them. This conclusion is based on two main factors, namely: most companies analyse investment decisions by focusing on cash flows, and§ accounting rules have no effect on when cash inflows or outflows occur, apart from the amount of taxes paid, which in those jurisdictions where the tax rules are identical or close to the accounting rules, is calculated on the income reported in a company’s financial accounts. So decisions to invest in resource efficient projects are normally based on whether the investment can reduce cash outflows or, because the products may be able to be sold with a price premium, increase cash inflows; the reported accounts are normally used by banks and analysts when evaluating§ investment propositions, but they are only one of the factors which financiers investigate. Further, financiers often understand different nuances in accounting rules and often make adjustments to the reported accounts to accommodate differences or uncertainties.

1. What journal entry could Madonna have booked on her G/L once the first commercial was completed? What entry could Pepsi have booked at the same time?

The remarkable, hyper-ambitious Material Girl who never stops reinventing herself, Madonna is a seven-time Grammy Award-winner who has sold over three hundred million records and CDs to adoring fans worldwide. Her film career, however, is another story. Her performances have consistently drawn scathing or laughable reviews from film critics, and the films have usually had tepid, if any, success at the box office. Born Madonna Louise Ciccone in August 1958 in Bay City, Michigan, she moved to New York in 1978 and studied with renowned choreographer Alvin Ailey, joined up with the Patrick Hernandez Revue, formed a pop/dance band called "Breakfast Club" and began working with then-boyfriend Stephen Bray on recording several disco-oriented songs. New York producer/D.J. Mark Kamins passed her demo tapes to Sire Records in early 1982 and the rest is history. The 1980s was Madonna's boom decade, and she dominated the music charts with a succession of multimillion-selling albums, and her musical and fashion influence on young women was felt around the globe. Madonna first appeared on screen in two low-budget films marketed to an adolescent audience: A Certain Sacrifice (1985) and Vision Quest(1985). However, she scored a minor cult hit with Desperately Seeking Susan (1985) starring alongside spunky Rosanna Arquette. Madonna's next effort with then husband Sean Penn, Shanghai Surprise (1986), was savaged by critics, although the resilient star managed to somewhat improve her standing with her next two films, the off-beat Who's That Girl (1987) (although she did receive decidedly mixed reviews, they weren't as negative as those of her previous effort) and the quirky Damon Runyon-inspired Bloodhounds of Broadway (1989). The big-budget and star-filled Dick Tracy (1990) had her playing bad girl "Breathless Mahoney" flirting with Warren Beatty, but the epic failed to catch fire at the box office. Taking an earthier role, Madonna was much more entertaining alongside Tom Hanks and Geena Davis in A League of Their Own (1992), a story about female baseball players during W.W.II. However, she again drew the wrath of critics with the whodunit Body of Evidence (1993), an obvious (and lame) attempt to cash in on the success of the sexy Sharon Stone thriller Basic Instinct (1992). Several other minor screen roles followed, then Madonna starred as Eva Perón in Evita (1996), a fairly well received screen adaptation of the hugely successful Broadway musical, for which she received a Golden Globe for Best Actress. The Material Girl stayed away from the movie cameras for several years, returning to co-star in the lukewarm romantic comedy The Next Best Thing (2000), followed by the painful Swept Away (2002) for husband Guy Ritchie. If those films weren't bad enough, she was woefully miscast as a vampish fencing instructor in the James Bond adventure Die Another Day (2002). After finally admitting that her acting days were over, Madonna began a directing career in 2008 with the barely remembered Filth and Wisdom (2008) and a year later she reunited with Madonna: Truth or Dare (1991) director Alek Keshishian to develop a script about the relationship between the Duke of Windsor and the Duchess of Windsor that led to his abdication in 1936: the result, a movie named W.E. (2011), starring James D'Arcy and Andrea Riseborough as the infernal but still royal couple, was released in 2011 to lukewarm critics but it gathered one Oscar nomination for costumes and won the Golden Globe for Best Original Song for "Masterpiece".

1. What occurred with regard to Madonna’s album sales as a result of the Pepsi ad? What could an accounting entry be to book her album sales?

Madonna’s debut as an actor followed her marriage to Hollywood actor Sean Penn, and a brief relationship with Warren Beatty. Her book Sex was released as an accompaniment to her studio album Erotica as the first output of a recently signed partnership with Time Warner. Undertaken with the support of famous friends from the music, film and fashion industries, Time Warner commented that Sex was very complex to produce, requiring partnerships with many different printing and publishing companies. The photographs in the book were taken by some of the world’s best known fashion photographers – Steven Meisel, Fabian Baron, Stephen Callaghan and Darren Lew. Sex stirred significant controversy for its sexually explicit content but went on to sell 1,500,000 copies at a cover price of $50 within three days of release. This made Sex the fastest selling coffee table book of all time, and an additional million copies each were printed in French, Japanese and Italian. Featured in the book were model Naomi Campbell, actress Isabella Rossellini, rap performers Vanilla Ice and Big Daddy Kane, grey porn actor Udo Kier, and the European socialite Tatiana von Furstenberg. The day after the release of the book cable television company MTV screened a documentary called The Day In Madonna featuring Madonna’s Sex and her new album Erotica