1. On December 31, 2019, the balance sheet for Chowdhury Inc., includes the liabilities listed below:
   1. 11% callable bonds (call price 101) with a face amount of $40 million were issued for $40 million on October 31, 2010. The bonds mature on October 31, 2030, at a redemption price of $40 million. Market conditions are such that the call is not expected to be exercised.
   2. Management intended to refinance $6 million of its 10% notes that mature in May 2020. In early March, prior to the actual issuance of the 2019 financial statements, Chowdhury Inc., negotiated a line of credit with a commercial bank for up to $5 million any time during 2020. Any borrowings will mature two years from the date of borrowing.
   3. Noncallable 12% bonds with a face amount of $20 million were issued for $20 million on September 30, 2000. The bonds mature on September 30, 2020. Sufficient cash is expected to be available to retire the bonds at maturity.
   4. A $12 million 9% bank loan is payable on October 31, 2025. The bank has the right to demand payment after any fiscal year-end in which Chowdhury’s ratio of current assets to current liabilities falls below a contractual minimum of 1.7 to 1 and remains so for six months. That ratio was 1.45 on December 31, 2019, due primarily to an intentional temporary decline in inventory levels. Normal inventory levels will be reestablished during the first quarter of 2020.

Required:

1. For items a – d determine the amount that can be reported as a current liability and as a noncurrent liability. Explain the reasoning behind your classifications.
2. Prepare the liability section of a classified balance sheet and any necessary note disclosure for Chowdhury at December 31, 2019. Accounts payable and accruals are $32 million.

On January 1, 2015, a machine was purchased for $90,900. The machine has an estimated salvage value of $6,060 and an estimated useful life of 5 years. The machine can operate for 101,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2015, 20,200 hrs; 2016, 25,250 hrs; 2017, 15,150 hrs; 2018, 30,300 hrs; and 2019, 10,100 hrs.

Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.)

Year Straight-line Method Sum-of-the-years'-digits method Double-declining-balance method

2015

2016

2017

2018

2019

2020

Copper Explorations recently acquired the rights to mine a new site. Equipment and a truck were purchased to begin mining operations at the site. Details of the mining assets follow:

Copper's year-end is December 31 and it uses the straight-line method for all mining assets including intangibles.

Required:
1. Record amortization and depreciation at December 31, 2020, on the mining assets, including the mineral rights.

2. Assume the mine was closed on October 31, 2023, and the assets were scrapped. Record the disposal of the assets.

On January 1, 2015, a machine was purchased for $94,500. The machine has an estimated salvage value of $6,300 and an estimated useful life of 5 years. The machine can operate for 105,000 hours before it needs to be replaced. The company closed its books on December 31 and operates the machine as follows: 2015, 21,000 hrs; 2016, 26,250 hrs; 2017, 15,750 hrs; 2018, 31,500 hrs; and 2019, 10,500 hrs. Assume a fiscal year-end of September 30. Compute the annual depreciation charges over the asset’s life applying each of the following methods. (Round answers to 0 decimal places, e.g. 45,892.) Year Straight-line Method Sum-of-the-years'-digits method Double-declining-balance method 2015 $ $ $ 2016 2017 2018 2019 2020

Suppose A and B are closed subsets of R. Show that A ∩ B and A ∪ B are closed.

Case Study Harwood Medical Instruments PLC Harwood Medical Instruments PLC (HMI), based just outside of Birmingham, England, manufactured specialty medical instruments and sold them in market niches that were becoming increasingly competitive and price sensitive because of pressures to reduce health care costs. HMI was organized into nine decisions each run by a general manager. Over the years, HMI had grown both organically and by acquisition. Six of the divisions had been acquired by HMI within the past decade. All of HMI’s divisions sold medical products to hospitals, laboratories, and/or doctors, so the need for product quality and reliability was high. The divisions varied significantly, however, in terms of the degree to which their success depended on, for example, development of new products, efficiency of production, and/or customer service. Bonuses for division general managers were paid semi-annually. Up to the year 2009, these bonuses were calculated as 1% of division operating profits. HMI’s managing director, Andy Guthrie, had concerns though that the operating profit measure was too narrowly focused. He had been reading articles about performance measurement and decided to a “more balanced” scorecard. In November 2009, just before introducing a new bonus plan, Mr. Guthrie explained to his chief financial officer that he was willing to pay out higher bonuses than had been paid historically if improved performance warranted doing so. The new plan provided a base bonus for division general managers of 1% of division operating profits for the half-year period. This base bonus was adjusted as follows: • Increased by £5,000 if over 99% of deliveries were on time; by £2,000 if 95-99% of deliveries were on time; or by zero is less than 95% of deliveries were on time. • Increased by £5,000 if sales returns were less than or equal to1% of sales, or decreased by 50% of the excess of sales returns over 1% of sales. • Increased by £1,000 for every patent application filed with the UK Intellectual Property Office. • Reduced by the excess of scrap and rework costs over 1% of operating profit. • Reduced by £5,000 if average customer satisfaction ratings were below 90%. If the bonus calculation resulted in a negative amount for a particular period, the manager received no bonus. Negative amounts were not carried forward to the next period. Exhibit 1 shows results for two representative HMI divisions for the year 2010, the first year under the new bonus plan. The Surgical Instruments Division (SID), one of HMI’s original businesses, sold a variety of surgical instruments, including scissors, scapels, retractors, and clamps. The markets for these products were mature, so growth was relatively slow. Not much innovation was needed, but controlling costs was critical. The Ultrasound Diagnostic Equipment Division (Ultrasound), which was acquired in 2007, sold and serviced ultrasound probes, transducers, and diagnostic imaging systems. The ultrasound market promised excellent growth and profits if the division could keep its sophisticated products on the cutting edge technologically and control both product development and product costs effectively. In 2009, the total annual bonuses for the year earned by the managers of SID and Ultrasound were approximately £85,000 and £74,000, respectively. Exhibit 1 Harwood Medical Instruments PLC Operating results for the surgical Instruments and Ultrasound Diagnostic Equipment Divisions, 2010 (£ in 000s) Surgical Instruments Division Ultrasound Diagnostic Equipment Division 1st half of 2010 2nd half of 2010 1st half of 2010 2nd half of 2010 Sales £42,000 £44,000 £28,600 £29,000 Operating profit £4,620 £4,400 £3,420 £4,060 On-time deliveries 95.4% 97.3% 98.2% 94.6% Sales returns £450 £420 £291 £289 Patent applications filed 0 1 4 8 Scrap and rework costs £51.1 £45.0 £39.7 £28.2 Customer satisfaction (average) 78% 89% 81% 91% Assignment Questions 1. What was the purpose of the change? 2. Calculate the bonus earned by each manager for each 6-month period and for the year 2010. 3. Evaluate the new plan. Is there any evidence that it produced the desired effects? What changes to the new plan would you suggest, if any? 4. Analyze the recommendation for a “more balanced” scorecard in performance measurement. What system would you recommend and what are its potential benefits and challenges in measuring performance?

Case Study Harwood Medical Instruments PLC Harwood Medical Instruments PLC (HMI), based just outside of Birmingham, England, manufactured specialty medical instruments and sold them in market niches that were becoming increasingly competitive and price sensitive because of pressures to reduce health care costs. HMI was organized into nine decisions each run by a general manager. Over the years, HMI had grown both organically and by acquisition. Six of the divisions had been acquired by HMI within the past decade. All of HMI’s divisions sold medical products to hospitals, laboratories, and/or doctors, so the need for product quality and reliability was high. The divisions varied significantly, however, in terms of the degree to which their success depended on, for example, development of new products, efficiency of production, and/or customer service. Bonuses for division general managers were paid semi-annually. Up to the year 2009, these bonuses were calculated as 1% of division operating profits. HMI’s managing director, Andy Guthrie, had concerns though that the operating profit measure was too narrowly focused. He had been reading articles about performance measurement and decided to a “more balanced” scorecard. In November 2009, just before introducing a new bonus plan, Mr. Guthrie explained to his chief financial officer that he was willing to pay out higher bonuses than had been paid historically if improved performance warranted doing so. The new plan provided a base bonus for division general managers of 1% of division operating profits for the half-year period. This base bonus was adjusted as follows: • Increased by £5,000 if over 99% of deliveries were on time; by £2,000 if 95-99% of deliveries were on time; or by zero is less than 95% of deliveries were on time. • Increased by £5,000 if sales returns were less than or equal to1% of sales, or decreased by 50% of the excess of sales returns over 1% of sales. • Increased by £1,000 for every patent application filed with the UK Intellectual Property Office. • Reduced by the excess of scrap and rework costs over 1% of operating profit. • Reduced by £5,000 if average customer satisfaction ratings were below 90%. If the bonus calculation resulted in a negative amount for a particular period, the manager received no bonus. Negative amounts were not carried forward to the next period. Exhibit 1 shows results for two representative HMI divisions for the year 2010, the first year under the new bonus plan. The Surgical Instruments Division (SID), one of HMI’s original businesses, sold a variety of surgical instruments, including scissors, scapels, retractors, and clamps. The markets for these products were mature, so growth was relatively slow. Not much innovation was needed, but controlling costs was critical. The Ultrasound Diagnostic Equipment Division (Ultrasound), which was acquired in 2007, sold and serviced ultrasound probes, transducers, and diagnostic imaging systems. The ultrasound market promised excellent growth and profits if the division could keep its sophisticated products on the cutting edge technologically and control both product development and product costs effectively. In 2009, the total annual bonuses for the year earned by the managers of SID and Ultrasound were approximately £85,000 and £74,000, respectively. Exhibit 1 Harwood Medical Instruments PLC Operating results for the surgical Instruments and Ultrasound Diagnostic Equipment Divisions, 2010 (£ in 000s) Surgical Instruments Division Ultrasound Diagnostic Equipment Division 1st half of 2010 2nd half of 2010 1st half of 2010 2nd half of 2010 Sales £42,000 £44,000 £28,600 £29,000 Operating profit £4,620 £4,400 £3,420 £4,060 On-time deliveries 95.4% 97.3% 98.2% 94.6% Sales returns £450 £420 £291 £289 Patent applications filed 0 1 4 8 Scrap and rework costs £51.1 £45.0 £39.7 £28.2 Customer satisfaction (average) 78% 89% 81% 91% Assignment Questions 1. What was the purpose of the change? 2. Calculate the bonus earned by each manager for each 6-month period and for the year 2010. 3. Evaluate the new plan. Is there any evidence that it produced the desired effects? What changes to the new plan would you suggest, if any? 4. Analyze the recommendation for a “more balanced” scorecard in performance measurement. What system would you recommend and what are its potential benefits and challenges in measuring performance?