**Activity: Fundamental Toys Inc - Accrual**

The financial reports for the current quarter are due. Bob has sent an email requesting your assistance

An email message:

As you know, the company has had a very profitable quarter, and management has decided to accrue a liability previously disclosed concerning a hazardous waste site cleanup. I need to provide financial accounting with an accrual amount for the quarter’s financial reporting.

Management has decided to accrue at the lower range of the 68% confidence interval and has asked me to provide the dollar amount. I’m giving you this assignment.

Here’s what you need to know:

Environmental Engineering has provided the following cleanup forecast with probabilities in parentheses (in thousands of dollars):

Low estimate $15,000 (0.20)

Most likely $20,000 (0.70)

High estimate $25,000 (0.10)

Here’s what I need from you:

Provide the accrual amount for the quarterly 10Q statement. Submit your analysis in my drop box by the date to be specified.

First, find the expected return - which some of you have done!

Next, using the variance information, find the *standard deviation* of the probability distribution.

The 68% confidence interval is one standard deviation around the mean.

1. The expected return *minus* one standard deviation (low range, 68% Confidence Interval)

2. The expected return *plus* one standard deviation (high range)

I hope this will help you answer the question.

Note: Please refer to Chapter 2 and Appendix C - Selected Equations. Thank you.

Best regards,

Dr. Colvin

-------------

**Here are the basic steps to solving descriptive word problem (s):**

1. Write down *deliverables*

2. Write down the *question(s)…*should match up w/ *deliverables*

3. Write down what is *given*

4. Determine the *type* of problem

5. *Find* the appropriate equation(s)…use the best equation!!!

6. *Solve* the equation

7. *Answer* the question(s).

8. *TRUST Your Work!!!*

I will walk you through this process for Week 3, Activities #1 and #2.

Please use this process for the remainder of this class. It might be useful in future classes.

Thank you!

Dr. Colvin

Subject | Business |

Due By (Pacific Time) | 01/11/2015 12:00 am |

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