goliath productions student coaching slides. did goliath breach the contract? argue both sides cite...
TRANSCRIPT
Goliath ProductionsStudent Coaching Slides
Did Goliath breach
the contract?
• Argue both sides
• Cite supporting authority
• Standard: What were the parties’ reasonable expectations?
Courts seek to preserve, not invalidate agreements
• Don’t sidestep the issues by saying there’s no agreement
• Promote fairness where it appears there was agreement
• Discuss policy that agreements generally must be enforceable in order to promote commerce
What did the parties intend at the time they entered the contract?
Giant’s argument: They were granted the right to exclusively show the films without any geographical limitation.
Goliath’s argument: A geographical limitation is implied; presumably Giant’s exclusivity is extended only to their market, i.e. the U.S.
Budgeted Revenues
• Sources of revenue in case – Contract fees– Exhibition fees
• Exhibition fees = Revenue per showing × number of showings
– Budgeted showings should include the expected maximum of Kombat Rex and the minimum for KR11-V
Revenue Recognition Criteria
• Per GAAP, revenue is recognized when it is:– Realized or realizable– Earned
Realized & Realizable
• Realized—cash has been received.• Realizable—a claim to cash or a near cash item
has been received, e.g., accounts or note receivables. The company giving the claim to cash must have the ability to pay.
• Question—Is there any doubt about Giant’s ability to pay their contracted amounts?
Earned
• Earned means that your company has performed the most important tasks in the earnings process.
– This usually means that you’ve delivered the merchandise or rendered the service to the customer.
– In this case it means that your team must evaluate what tasks must be performed to recognize each source of revenue (contract and exhibition fees.)
Contract Fees
• What was the contract fee of $5,000,000 for?– The exclusive right to the films?– The signing of the contract?– Additional amounts for showing films?
• Your answer impacts when revenue will be recognized for contract fees.
Exhibition Fees
• Exhibition fees are earned ($500) each time a movie is shown according to contract terms.
• Question—Is Giant showing the movies according to contract terms? Study their audited statement of showings dated December 31, 2006.
• Revenue measures the amount that you have earned through providing goods and services to customers, regardless of whether you have received payment in cash.
• Cash flow measures the amount of cash received. They represent real increases in your bank balance that you can spend.
Revenue vs. Cash Flow