Case 1, B&L

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Bausch & Lomb, Inc. (A) 1. A. What was the impact of the December 1993 shipments of conventional lenses on B&L’s 1993 financial statements? Was the impact material? The impact was as follows:
An additional $22 million of net revenues.
The inventory of B&L reduced by 1.8 million pairs of conventional lenses.
There was a significant increase in account receivable.
COGS increased by 45%*$22 million = $9.9 million.
There was very little increase in SG&A compared with 1992.
Potential increase in marketing expenses on “Premier Vision” plan in the following years. This impact was material. In B&L’s 1993 annual report, it stated that “contact lens revenues rose 13% over 1992 and finished the year strongly”. Furthermore, although market demand for conventional lenses went down in 1993 (shown in Exhibit 6), B&L still successfully reduced its inventory by 1.8 million pairs. B.  However, based on the information above, we can observe that B&L’s new sales strategy was to make distributors absorb inventory and improperly recognize it as revenues, which actually polished its financial report of 1993. 2. When should B&L have recognized revenue on these shipments? Why?
To answer this question, we need to look up GAAP. As stated by US. GAAP, which also showed in exhibit 7, “Revenue and gains are not recognized until realized, realizable or earned.” In our opinion, only when B&L satisfies the three criteria above can the company record an increase in revenue. Now, we are going to explain in details.
First of all, by “realized”, it means that entities have the claims to cash or in other words, it is promised to collect money. However, in this case, “B&L has to increase the credit limits of 11 of its distributors and at least one case the limit was increased by more than 100%...placed many of 1 BUSI 610 Case#1

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