PolyMedica Corporation - Accounting and Finance Assignment Help

Assignment Task

1. Analyze the business model of PolyMedica. Explain and evaluate the validity of the CFO's claim that "Our business is more akin to an insurance or annuity business than a traditional medical supplier".
2. Outline five arguments for and five arguments against capitalizing the direct-response advertising costs. If you were running the firm, which option would you choose and why? See discussion forum for clarification.
3. Compute the impact on the company's financial statements if PolyMedica had expensed the direct-response advertising costs as incurred in 2003 and 2002.
4. Comment on the accounting disclosure quality of PolyMedica (based on what is provided in the case exhibits). In other words, do you believe that PolyMedica has provided enough information in its reports for investors to understand the implications of their accounting choice to capitalize the direct-response advertising costs?

Questions
1. Explain the difference between an asset and an expense.
2. Explain the role of advertising in the company's customer acquisition strategy.
3. What are the arguments in favor of capitalizing the direct-response advertising expenditures? What are the arguments in favor of expensing the direct-response advertising expenditures as incurred? As a CEO of PolyMedica, would you favor capitalizing or expensing the direct- response advertising costs?
4. What would be the impact on the company's financial statement if PolyMedica had expensed the costs as incurred in 2003 and 2002? Calculate key balances that highlight any major differences.
5. As a CEO of Poly Medica, how might you respond to this direct-response advertising accounting issue raised by the SEC and short sellers?

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