Assignment

THE BIG PICTURE - QUESTIONS

The CEO of MV-Link Productions has hired your consulting firm to produce a report on this possible breach of contract case, including recommendations. Use the report writing guide from the course website. In your analysis of this case include answers to the following questions:

Q. 1. Did MV-Link breach the contract? Specifically discuss whether the showing by a competitor movie chain in Toronto constituted a violation of the MV-Link/PACE agreement.

Q. 2. Assuming the contract is valid, prepare the following financial analyses:

1. Prepare a budget of expected minimum revenues under the contract. Show the sources of revenues from the set of five films and the fee.

1. What are the general revenue recognition criteria established under Generally Accepted Accounting Principles (GAAP)

c. How would you apply the GAAP criteria for revenue recognition to account for the revenues under this contract? Explain your logic for both realizable and earned.

d. Using the logic you developed in part c, calculate the revenue that MV-Link Productions should report for the set of five films for the year ended 12/31/2006.

e. For the year ended 12/31/2006, prepare a schedule that shows the cash flows received from PACE from the contract.

f. Why do cash flows and revenues recognized differ, if they differ under your calculations?

Note: To the extent that you may recognize any antitrust issues (which we would not expect) please ignore them for purposes of this analysis.

In preparing your report remember to review LDC financial accounting concept 5 (cash flow vs. GAAP income), financial accounting concept 8 (understanding the timing of revenue recognition), management accounting concept 5 (understanding how to budget revenue), and business law concept 1 (offer and acceptance of contracts; enforcement of contracts: interpreting the parties' intent)

DATE: March 2007

TO: MV-Link Productions
FROM: The Business Associates Consulting Firm
RE: Analysis of liability for breach of contract

As you requested, we have prepared an analysis of MV-Links liability for breach of contract as alleged by PACE theaters, a large theatre chain with approximately 475 theatres across the United States. In the analysis we examine the financial and legal aspects of the information provided. Please contact us if you need any more information.

EXECUTIVE SUMMARY-Karine

Case brief: MV-Link completed the production of five movies. This set of movies contains "Kombat Rex" film which marketing researcher indicates that will be a hit. The other four movies KR II, KR III, KR IV, and KR V will just be a continuation of the original story. In order to get the hit, theaters should agree to show all movies a minimum number of times. MV-link Production gets chance to sign an exclusive contract with PACE. PACE theater has about 475 theaters within the United States. However, the contract has made without mention the exact requirement of limitations and screenings. Also, MV-Link Production accepts that PACE interest to be as a sole source among theaters during the contract period. PACE is demanding to reimburse the paid funds due to MV-Link Production did not comply with all the agreements showing in the contract.

Purpose: Determine and understand contract's key points using financial, managerial accounting, and business law analysis.

Legal Analysis: In order to prove MV-Link production actions are legal there are two concepts to determine: MV-Link is in compliance with standard regulations and complies with contract agreement.

Financial Analysis: GAAP criteria for revenue recognition, cash flow, and revenue recognition differences, calculation of revenue for the year end 12/31/2006 and cash flow received from PACE from the contract. Preparation of the budget of expected revenue under the contract. The emphasis of the sources of revenue from five movies and the fee.

Results: After completing all necessary analysis of the case the result is PACE does not have any rights to demand money back from MV-Link Production. PACE cannot open lawsuit against MV-Link production due to their actions are within compliance with the contract agreement .
Recommendation: Analyzing the case based on provided facts our recommendation would be to not reimburse funds to PACE due to advertising took place in Canada and Canada has different market.

Introduction-Nehal

Legal Analysis-Tarfa

The MV-Link production did not violate the contract agreement by issuing the rights to show to a competitor movie chain in Toronto. The agreement clearly stated that the permission to show the proposed films was released to PACE Theatres for the indicated number of months that started on September 1, 2006. The content, under ‘Exclusivity' section, states that MV-Link acknowledges a showed interest in giving PACE theatres the rights of being the sole source, without any interference from theaters with similar interests, in the period of the duration of the contract. The length of the contract was supposed to end March 1, 2007. Therefore, by airing the proposed films in of February 2007, the rival theater in Toronto, Canada could not have sabotaged the market for PACE shows.

According to business law concept, the contract had undergone the offer and acceptance, up to the signage stage and was, therefore, enforceable by law. PACE Theatres had played its part of paying for the movies as indicated by the contract ($ 2,500,000 during the officiating of the agreement and $2,500,000 in September.) PACE was also expected to pay a fee of $500 per film showing at each location amounting to $5,462,000. This amount according to PACE was paid on January 20, 2007. This constituted to the components of earning according to financial accounting concept 5 paragraph 80, which refers to paragraph 36, revenue quantifies the length of asset inflows linked with vaguely finished cash-to-cash rotation overreaches asset outflows related, directly or indirectly, to the similar sequences, The conclusion is that PACE Theatres had completed their payments and their section of the contract.

In the introduction, statement of paragraph if the revenues and gains are not yet recognized the issuing party has to provide some sort of assurance in which the Toronto theatre had not been issued with. It was merely an invitation to treat as discussed by business law concept 1. This did not guarantee the gaining of revenue due to showing the five films.

Since the courts draw intent from the parties involved, and the wordings used in the agreement while attaching or using the agreement as evidence (as it is stated in business law concept 1 under ‘courts construe a contract's meaning to be consistent with the parties' intention), the MV Links' intentions are believed to be pure since they followed the agreement to the latter and had no bad intentions in issuing the contract to Toronto theatres.

The plain meaning with no hidden intent would be used to define the case and a conclusion drawn from the given agreement. It left no space for loopholes thus the definitions were clear. The only ambiguous part would have been the end time of the contract since a date was not issued. A proper calculation of months between MV Link and PACE Theatre would have been appropriate.

In conclusion, MV-Link had not violated any of the terms of the agreement and was, therefore, was not liable to a lawsuit.

Attachment:- Big-Picture-Case-Text.pdf