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Case study on Accounting

Case study on Accounting

Database research strategies include defining the research necessary to answer the research question. Consider the article “Accounting for the Intel Pentium Chip Flaw” (Miller and Narayanan, 2001). Next, using outside sources that you may seek and your professional experience, develop and write a 3- to 4-page paper concisely answering the following questions:

(A3.1) If you were an accountant for Intel, what specifically would be the relevant accounting research question with respect to the Intel Pentium chip flaw?

(A3.2) What constrains Intel’s decisions about how to account for the Pentium chip flaw?

(A3.3) What do you need to know, estimate, and assume to answer the research question?

(A3.4) What would you recommend to Intel management with respect to accounting for the Intel Pentium chip flaw? Why?

 

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bond premium or discount

heyenne Corporation sold $2,210,000, 7%, 5-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and pay interest on January 1. Cheyenne Corporation uses the straight-line method to amortize bond premium or discount. Partially correct answer. Your answer is partially correct. Try again. Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2017, assuming that the bonds sold at 104. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Entry field with correct answer Dec. 31 Entry field with correct answer Entry field with incorrect answer Entry field with incorrect answer Entry field with correct answer Entry field with incorrect answer Entry field with incorrect answer Entry field with correct answer Entry field with incorrect answer Entry field with incorrect answer

 

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Statement of Ethical Professional

Ethics, levers of control. Zuzu is a large manufacturer of snack cakes. The company operates distribution centers in Chicago. The distribution center bakes and packages the snack cakes and ships them to grocery warehouses throughout the country. Because of the high standards set for both quality and appearance, there is a reasonable number of “seconds” that do not meet standards and are sold to company outlets for sale at reduced prices. In recent years, the company’s average yield has been 90% of first-quality products for sale to grocery warehouses. The remaining 10% is sent to the outlet store. Zuzu’s performance-evaluation system pays its distribution center managers substantial bonuses if the company achieves annual budgeted profit numbers. In the last quarter of 2017, Noah Spalding, Zuzu’s controller, noted a significant increase in yield percentage of the Chicago distribution center, from 90% to 98%. This increase resulted in a 10% increase in the center’s profits. During a recent trip to the Chicago center, Spalding wandered into the snack cake warehouse. He noticed that most of the snack cake “seconds” were being packed and sent off to grocery warehouses instead of being sent to the outlet stores. When he asked one of the workers, he was told that the center’s manager had directed workers to stop sending all the “seconds” to the outlet except for the extremely damaged packages. This practice resulted in the center overreporting both yield and ending inventory of normal, saleable product. The overstatement of Chicago inventory will have a significant impact on Zuzu’s financial statements.

1. What should Spalding do? You may want to refer to the IMA Statement of Ethical Professional Practice, page 17.

2. Which lever of control is Zuzu emphasizing? What changes, if any, should be made?

 

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Case study on decision making

Case study on decision making

RI, decision making. The following data refer to Clear Panes, a division of Global Corporation. Clear Panes makes and sells residential windows that sell for $150 each. Clear Panes expects sales of 150,000 units in 2017. Clear Panes’ annual fixed costs are $2,750,000 and their variable cost is $90 per window.

Global evaluates Clear Panes based on residual income. The total investment attributed to Clear Panes is $12 million and the required rate of return on investment is 16%. Ignore taxes and depreciation expense. Answer each of the following parts independently, unless otherwise stated.

1. What is the expected residual income in 2017?

2. Clear Panes receives an external special order for 10,000 units at $120 each. If the order is accepted, Clear Panes will have to incur incremental fixed costs of $250,000 and invest an additional $450,000 in various assets. What is the effect on Clear Panes’s residual income of accepting the order?

3. The window latch Clear Panes manufactures for its windows has a variable cost of $20. An outside vendor has offered to supply the 150,000 units required at a cost of $21 per unit. If the component is purchased outside, fixed costs will decline by $100,000 and assets with a book value of $150,000 will be sold at book value. Will Clear Panes decide to make or buy the component? Explain your answer.

4. One of Clear Panes’s regular customers asks for a special window with stained glass inserts. The customer requires 2,500 of these windows. Clear Panes estimates its variable cost for these special units at $105 each. Clear Panes will also have to undertake new investment of $300,000 to produce these windows. What is the minimum selling price that will make the deal acceptable to Clear Panes?

5. Assume the same facts as in requirement 4. Also suppose that the customer has offered $130 for each stained glass window. In addition, the customer has indicated that its purchases of the existing product will drop by 1,500 units. a. What is the net change in Clear Panes’s residual income from taking the offer, relative to its planned 2017 situation? b. At what drop in unit sales of the regular window would Clear Panes be indifferent to the offer?

 

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Use benchmarking and compensate division managers

 Use benchmarking and compensate division managers

Division managers’ compensation, levers of control (continuation of 23-36). John Mendenhall seeks your advice on revising the existing bonus plan for division managers of News Report Group. Assume division managers do not like bearing risk. Mendenhall is considering three ideas:

■ Make each division manager’s compensation depend on division RI.

■ Make each division manager’s compensation depend on company-wide RI.

■ Use benchmarking and compensate division managers on the basis of their division’s RI minus the RI of the other division.

1. Evaluate the three ideas Mendenhall has put forth using performance-evaluation concepts described in this chapter. Indicate the positive and negative features of each proposal.

2. Mendenhall is concerned that the pressure for short-run performance may cause managers to cut corners. What systems might Mendenhall introduce to avoid this problem? Explain briefly.

3. Mendenhall is also concerned that the pressure for short-run performance might cause managers to ignore emerging threats and opportunities. What system might Mendenhall introduce to prevent this problem? Explain briefly.

 

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Case study on comparison of profit

Multinational firms, differing risk, comparison of profit, ROI, and RI. Newmann, Inc. has divisions in the United States, France, and Australia. The U.S. division is the oldest and most established of the three and has a cost of capital of 6%. The French division was started four years ago when the exchange rate for the Euro was 1 Euro = $1.34 USD. The French division has a cost of capital of 8%. The division in Australia was started this year, when the exchange rate was 1 Australian Dollar (AUD) = $0.87 USD. Its cost of capital is 11%. Average exchange rates for the current year are 1 euro = $1.07 and 1 AUD = $0.74 USD. Other information for the three divisions includes:

1. Translate the French and Australian information into dollars to make the divisions comparable. Find the after-tax operating income for each division and compare the profits.

2. Calculate ROI using after-tax operating income. Compare among divisions.

3. Use after-tax operating income and the individual cost of capital of each division to calculate residual income and compare.

4. Redo requirement 2 using pretax operating income instead of net income. Why is there a big difference, and what does this mean for performance evaluation?

 

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measurement method affect goal congruence

RI, EVA, measurement alternatives, goal congruence. Refresh Resorts, Inc., operates health spas in Key West, Florida; Phoenix, Arizona; and Carmel, California. The Key West spa was the company’s first and opened in 1991. The Phoenix spa opened in 2004, and the Carmel spa opened in 2013. Refresh Resorts has previously evaluated divisions based on RI, but the company is considering changing to an EVA approach. All spas are assumed to face similar risks. Data for 2017 are:

1. Calculate RI for each of the spas based on operating income and using total assets as the measure of investment. Suppose that the Key West spa is considering adding a new group of saunas from Finland that will cost $225,000. The saunas are expected to bring in operating income of $22,000. What effect would this project have on the RI of the Key West spa? Based on RI, would the Key West manager accept or reject this project? Without resorting to calculations, would the other managers accept or reject the project? Why?

2. Why might Refresh Resorts want to use EVA instead of RI for evaluating the performance of the three spas?

3. Refer back to the original data. Calculate the WACC for Refresh Resorts.

4. Refer back to the original data. Calculate EVA for each of the spas, using net book value of long-term assets. Calculate EVA again, this time using gross book value of long-term assets. Comment on the differences between the two methods.

5. How does the selection of asset measurement method affect goal congruence?

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major concern for tax authorities

major concern for tax authorities

Transfer pricing is a major concern for tax authorities who are worried that multi-national entities may set transfer prices on cross-border transactions to reduce taxable profits in their jurisdiction. This has led to the rise of transfer pricing regulations and enforcement, making transfer pricing a major tax compliance issue. Explain what transfer pricing is in greater detail and address how the Australian Taxation Office is trying to remediate this issue?

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Case study on business

Case study on business

On June 10, Tuzun Company purchased $6,450 of merchandise from Epps Company, FOB shipping point, terms 2/10, n/30. Tuzun pays the freight costs of $480 on June 11. Damaged goods totaling $350 are returned to Epps for credit on June 12. The fair value of these goods is $70.On June 19, Tuzun pays Epps Company in full, less the purchase discount. Both companies use a perpetual inventory system.
a)Prepare separate entries for each transaction on the books of Tuzun Company.b) Prepare separate entries for each transaction for Epps Company. The merchandise purchased by Tuzun on June 10 had cost Epps $5,500.

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Tax return Forms for 2015

Complete Tax return Forms for 2015:

George Large (SSN 000-11-1111) and his wife Marge Large (000-22-2222) live at 2000 Lakeview Drive, Cleveland, OH 49001 and want to prepare their 2015 income tax return based on the information below:
George Large worked as a salesman for Toyboat, Inc. He received a salary of $80,000 ($8,500 of federal income taxes withheld and $1,800 of state income taxes withheld) plus and expense reimbursement from Toyboat of $5,000 to cover his employee business expenses. George must make an adequate accounting to his employer and return excess reimbursement; none of the reimbursement was related to meals and entertainment.
Additionally, Toyboat provides George with medical insurance worth $7,200 per year. George drove his car a total of $24,000 miles during the year and placed car in service on June 1, 2013. His log indicates that $18,000 miles were for sale calls to customers at the customers’ offices and the remainder was personal mileage. George uses the standard rate method. Assume his business miles were driven evenly during the year
George is a college basketball fan. He purchased two season tickets for a total of $4,000. He takes a customer to every game, and they discuss business before, during and after the games. George also takes clients to business lunches. His log indicates that he spent $1,500 on these business meals. George also took a five day trip to the Toyboat headquarters in Musty, OH.
He was so well prepared that he finished his business in three days, so he spent the other two days sightseeing. He had the following expenses during each of the five days of his trip:
Airfare $200
Lodging $85/day
Meals $50/day
Taxicabs $20/day
Marge Large is self-employed. She repair’s rubber toy boats in the basement of their home, which is 25% of the house’s square footage. The business code is 811490. She had the following income and expenses.
Income from rubber toy boat repairs $15,000
Cost of supplies $ 5,000
Contract labor $ 3,500
Long-distance phone calls – business $ 500
The Large’s home cost a total of $150,000 of which the cost of land was $20,000. The FMV of the house is $225,000. The house is depreciable over a 39 year recovery period. The Larges incurred the following total other expenses:
Utility bills for the house $2,000
Real estate taxes $2,500
Mortgage interest $4,500
Cash charitable contributions $3,500
Required:
Prepare Federal Form 1040, Schedule A , Schedule C and Schedule SE for form 1040 , and Federal Form 2106 and Federal Form 8829 for the income tax year 2015 . (Assume that no estimated taxes were paid by the Larges.)

CHECK ANSWERS WITH CHECK FIGURES:

1040 Individual Tax Return Check Figures:

1040

Page 1 Line 37 – AGI – $82,711

Page 2 Line 43 – Taxable Income – $57,125

Schedule A

Line 29 – Total Itemized Deductions – $ 17,586

Schedule SE

Line 5 – Self Employment Tax – $412

Form 2106

Line 6 – Total Expenses – Column A – $10,865

Column B – $5,650

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