(RTTNews) - Japanese electronics conglomerate Toshiba Corp. (TOSYY.PK, TOSBF.PK) said Tuesday that it expects to record goodwill impairment charge of several billion dollars related to an acquisition of U.S. nuclear power operations.

The goodwill is related to the purchase of U.S. engineering company CB&I Stone & Webster Inc.'s nuclear construction and integrated services business by Toshiba's U.S. subsidiary, Westinghouse Electric Co. LLC. Westinghouse's acquisition of 100 percent of the shares of CB&I Stone & Webster or S&W from Chicago Bridge & Iron Company N.V. or CB&I closed in December 2015. At that time, Toshiba said the amount of goodwill would be finalized by December 31, 2016, in accordance with U.S. GAAP procedures. But the company had made a preliminary estimate that the goodwill resulting from the transaction will be about $87 million and subject to change.

As the deadline for the finalization of the procedure is nearing, Toshiba said it has found that the goodwill will reach a level of several hundred billion yen, or several billion dollars, resulting in a negative impact on the company's financial results. Westinghouse has been engaged in purchase accounting and studying the actual status based on materials provided by S&W and others after the transaction completion. The company is evaluating the cost to complete the AP1000 contracts to measure the fair value of acquired assets and liabilities.

Westinghouse has found that the cost to complete the U.S. projects will far exceed the original estimate, mainly due to increases in key project parameters, resulting in far lower asset value that originally determined. Thus, goodwill recognized will possibly far exceed the original December 2015 estimate of $87 million, Toshiba noted. Both Toshiba and Westinghouse will initiate impairment testing for the goodwill toward the third-quarter of fiscal 2016 business results. Toshiba will announce its revised forecast for fiscal 2016 after determining the impact of the possible Westinghouse loss on its own financial results. On the Tokyo stock exchange, Toshiba's shares fell 51.50 yen or 11.62 percent to close at 391.60 yen.

Required:

1. Based on this Toshiba case and other reference materials available from the internet, please discuss the possible reasons that goodwill is not amortized like other intangible assets, but is tested for impairment on a periodic basis.

2. Assume that you were a financial analyst. Please explain to your client the reasons that impairment losses lead to lower stock price.

*Hint: Please note that you first need to figure out the factors and financial ratios that are negatively affected by the goodwill impairment losses. After that, you need to further build up a link between those factors and the lower stock price.

3. Assume that you were a financial analyst, and you focus on the e-commerce industry. You recently notice that the goodwill level in Jingdong fluctuates a lot over the last eight years. What are the possible reasons for this fluctuation? As a financial analyst, would you consider this as a positive sign or a negative sign?

Case Study 10.1: Publicized Conflict at Yahoo In the Age of Information, many big companies will eventually suffer a publicly aired scandal, but it seems that Yahoo has had more than its share in recent years. To name a few: the public, bitter ousting of CEO Carol Bartz in 2011; the unpopular moves by current CEO Marissa Mayer to halt work-from-home privileges and her decision to rate employees on a bell curve. The most recent commotion came in January 2014 when Mayer ousted Henrique De Castro from his position as COO.

De Castro was brought on as her second in command, and he walked out with a much-talked-about $58 million severance—after just 15 months on the job. De Castro was a former vice president of Google’s Partner Business Solutions group, and Mayer, also an ex-Google exec, lured him from Google with a hefty pay bump and more powerful title. His job: to turn around declining ad revenue as Yahoo’s de facto top ad man and liaison to marketers on Madison Avenue as the company continued to lose bids to rivals Facebook and Google. There are indications, however, that Mayer did not know quite what she was getting into by hiring De Castro. “Interestingly, despite giving off the impression they did, the pair actually did not work closely at Google, according to dozens of sources there,” wrote Kara Swisher in Re/Code. “Therefore, Mayer did not seem to grok the many signals that De Castro had a troubled time there near the end of his tenure.” Moreover, De Castro’s performance reviews by Google peers were mixed; he “was a polarizing figure at Google, where Mayer had hired him from [and] quickly became the same polarizing figure at Yahoo,” Swisher added.

As COO with Yahoo, De Castro was charged with nurturing clients, fixing broken relationships with them, and building business. Yet according to Google ex-colleagues quoted by Business Insider, De Castro was known as smart and effective but was “not well-liked by people under him” (a sentiment later echoed by his fellow Yahoo-ers). His enemies were many, it seems, and he made a number of incautious public statements—not good characteristics in someone charged with smoothing over troubled relationships. Moreover, he wasn’t bringing in the dollars his under-the-gun CEO needed, and pressure was mounting. Within the first couple of months, “he and Mayer had developed a tense relationship that many in meetings with the pair found it hard not to notice,” wrote Swisher, quoting a Yahoo insider as saying “They just did not get along and did not hide it at all,” adding that “it was really awkward.’” De Castro had also reportedly been fighting for power with Ned Brody, the new sales head, M&A head Jackie Reses, and marketing head Kathy Savitt. “In other words, everyone inside the Mayer inner circle.”

Although De Castro’s performance reviews by Google peers were mixed, his time at Yahoo was decidedly disappointing. He achieved little in terms of boosting ad revenue, and his time was marked by tensions, including with Mayer herself. No top Yahoo-er earned a full bonus given the company’s financial troubles that year, but others among the top brass were granted between 83 percent and 92 percent of their target bonuses. De Castro, however, was left out in the cold. Industry watchers began to openly speculate that De Castro was on his way out with his conspicuous absence from the Consumer Electronics Show in early January 2014, where giants like Yahoo typically tout their latest and greatest and court new advertisers. In a company memo announcing De Castro’s departure later the same month, Mayer wrote, “Overall, I am confident that the leadership team, our direction, and these changes will enable even more successful execution.” Conspicuously absent was any praise for De Castro’s brief tenure.

Why did Mayer hire De Castro? According to sources who spoke to Business Insider, the reasons were twofold: she believed he was responsible for building Google’s advertising business from zero to billions, and she thought he was the driving force behind the brand advertising success of YouTube. Others saw De Castro as having little to do directly with Google’s growth, mainly sailing in on the coattails of others and being in the right place at the right time. Did Mayer’s reputation suffer for her decision? Many saw De Castro’s departure as a smart and necessary move, but Mayer had hand-selected him and paid him well. Some called for Mayer herself to resign, while others were willing to give her more time in the job to turn the company around. Mayer has taken some responsibility for the mess, saying, ““I think it was the right time for us to go our separate ways. . . . There were issues there that I potentially created, and it was important to me to fix them.” And though Mayer may have made a mistake in hiring De Castro, she’s certainly done a lot right in her two years as CEO: she oversaw the acquisition of 37 companies including Tumblr; she launched a tidal wave of new, critically acclaimed products; and she added to Yahoo’s brand cachet and credibility by hiring celebrity journalists like Katie Couric and David Pogue, former tech writer for the New York Times. On Mayer’s watch, Yahoo’s stock has more than doubled. Her leadership has not been without controversy, but it hasn’t been without achievement, either. As the Motley Fool suggested, “Time to move on and focus on what matters: winning back some of Google’s industry-leading $14.9 billion in quarterly online revenues, most of which are related to advertising.”

“Conflict among team members, in and of itself, is not the enemy,” wrote Ilan Mochari in Inc. “The enemy is when conflicts become personal. One of the signs of a healthy organization is when members of the top team can openly disagree with each other without their relationships becoming tense.” With De Castro and Mayer, that became impossible, and when paired with De Castro’s disappointing sales performance, it resulted in one of the most expensive—and embarrassing—executive partings in Silicon Valley history.

Case Questions

1. Explain whether the ousting of former CEO and COO, as well as the employee standards reform, have been functional or dysfunctional conflict for Yahoo.

2. Explain what type of conflict made DeCastro less than suitable for the position of COO at Yahoo.

3. Describe why trust will be an important factor for Yahoo as a company.

You are the Chief Executive Officer (CEO) of Landsdale Corporation, LLC, with headquarters in New York City. Landsdale manufactures medical equipment. For fiscal year 2019, Landsdale’s profits were 5 billion dollars. Landsdale opened a subsidiary in Mexico in February 2019. Business was good in Mexico until coronavirus struck in January 2020. International travels have now been suspended indefinitely and supply chains have been disrupted. Explain in detail your policy prescriptions and business decisions relative to maintaining the subsidiary in Mexico.

Please be specific relative to the following:

A) Coronavirus B) Exchange rate volatility C) Consumer demand

Preparing Adjusting Journal Entries

Pacific Company adjusts and closes its books each December 31. It is now December 31, 2020, and the following information is available for preparing accounting adjustments.

1. The Accounts Receivable balance at December 31 is $6,400. The company estimates that 5% of receivables will not be collected. (Assume a zero beginning balance in Allowance for Doubtful Accounts.)
2. Unpaid and unrecorded salaries incurred at December 31 are $960.
3. The company paid a two-year insurance premium in advance on April 1, 2020, for $1,920 cash, which was debited to Prepaid Insurance.
4. Equipment which cost $16,000, is to be depreciated for the full year. The estimated useful life is 10 years, and the equipment will be depreciated evenly over its useful life.
5. Pacific Company leased a warehouse on June 1, 2020, for one year only. The company was required to pay the full amount of rent one year in advance on June 1, for $1,920 cash, which was debited to Lease Expense.
6. The company received from a customer a 9% note with a face amount of $2,400. The note was dated September 1, 2020; the principal plus the interest is payable one year later. Note Receivable was debited, and Sales was credited on September 1, 2020.
7. On December 30, 2020, the property tax bill was received in the amount of $1,000. This amount applied only to 2020 and had not been previously recorded or paid. Taxes are due, and will be paid, on January 15, 2021.
8. On April 1, 2020, the company signed a $12,000, 10% note payable. On that date, Cash was debited and Note Payable credited for $12,000. The note is payable on March 31, 2021, for the face amount plus interest for one year.
9. The company purchased a patent on January 1, 2020, at a cost of $2,380. On that date, the Patent was debited and Cash credited for $2,380. The patent has an estimated useful life of 17 years and no residual value. Hint: Record the estimated consumption of the patent as amortization expense.

Prepare the adjusting entry required on December 31, 2020, for each situation 1 through 9. Assume that no adjusting journal entries were recorded during the year prior to year-end.

6.

The stockholders' equity account balances of Kay Corporation
for 2020 are given below:

                                     January 1      December 31
Common stock ......................   648,000         720,000
Paid-in capital – common stock ....   540,000         594,000
Treasury stock ....................   160,000          36,800
Paid-in capital – treasury stock ..     5,000            ?
Retained earnings .................   425,000            ?

The common stock account at January 1 consisted of 54,000 shares
that were outstanding at a $12 par value per share.

The treasury stock account at January 1 consisted of 10,000 shares
that had been re-acquired at a $16 cost per share.

During 2020, Kay Corporation entered into the following transactions:

March 23     Re-issued 2,400 of the treasury shares for $22 per share

June 9       Re-issued 3,700 of the treasury shares for $13 per share

August 15    Issued 6,000 shares of previously un-issued common stock

November 2   Re-issued 1,600 of the treasury shares for $14 per share

December 18  Declared and paid a $3.75 dividend per share on the
             outstanding shares of common stock

Kay Corporation reported a net income of $293,760 for 2020.

Calculate the retained earnings account balance at December 31, 2020.

The separate condensed balance sheet of Patrick Corporation and its wholly-owned subsidiary, Sean Corporation, are as follows:

Additional Information:
* On December 31, 2020, Patrick acquired 100% of Sean’s voting stock in exchange for $460,000.
* At the acquisition date, the fair values of Sean’s assets and liabilities equaled their carrying amounts, respectively, except that the fair value of certain items in Sean’s inventory were $25,000 more than their carrying amounts.

1. In the December 31, 2020, consolidated balance sheet of Patrick and its subsidiary, what amount
of total assets should be reported?

2. In the December 31, 2020, consolidated balance sheet of Patrick and its subsidiary, what amount
of total stockholders’ equity should be reported?

You have been appointed as financial manager for MBA. The company manufactures one product and uses standard costing system.

Standard cost per unit

Material 5kg at R12 50 per unit

Labour 2 hours at R35 per hour

Factory overheads R45 per labour hour.

Actual data for the month:

Number of units manufactured 12500

Material used R811 250                                                        

Issue price of material R13 75 per kg

Calculate and explain the difference between the total actual and the total standard cost.

Suggest a course of action

Ahmad company (the 80%-owned subsidiary); in 1/5/2018 sold land to Fatima Company (the subsidiary) at selling price $125,000, the cost of land $100,000. During 2020, Fatima Company sold the land at $140,000. Net income for Fatima Company as follows: 2018 2019 2020 Net Profit 80,000 100,000 60,000 Instructions: 1. Journalize the above transactions in Parent Company records and in the Subsidiary Company records. 2. Calculate the Parent company from the subsidiary’s net income? 3. Calculate the Minority interest from the subsidiary’s net income? 4. Prepare the working paper in Journal entries format for 2018; 2019 and 2020?

Question B1

In 2002, Musk sold his second internet startup, PayPal, to eBay for $1.5 billion. His first company, a Web software firm, was acquired by Compaq. Currently, Musk is the CEO of Space Exploration Technologies (SpaceX) and Tesla Motors, and also the chairman and the largest shareholder of SolarCity, an energy technology company. SpaceX, which builds rockets for companies and countries to put satellites in space, was the first private company to deliver cargo to the International Space Station. It’s reigniting interest in space exploration. Tesla Motors is the world’s most prominent maker of electric cars and is proving that electric cars can be green, sexy, and profitable. SolarCity is now the leading provider of domestic solar panels in the United States. Each of these ventures has transformed an industry: PayPal – Internet payments; Tesla – automobiles; SpaceX – aeronautics; and SolarCity – energy. (Modified from source: Kristoffer Tripplaar/Sipa USA (Sipa via AP Images)

Based on the above case, name the type of problems Musk deal with when developing these new ventures.

B2

In early 2020, Hong Kong was hit by a disease – Coronavirus. As more and more people were infected with Coronavirus, citizens had adopted the practice of wearing masks whenever they got out of their homes. Thousands of people lined up in streets and wait overnight for a chance to purchase masks for themselves and their families. The price of masks, when they were available, had increased from HK$1 a piece to HK$10 or even more. Mr. Wong was a restaurant owner. He was shocked by the situation and he wanted to help. He tried to purchase masks from sources all over the world but was unsuccessful most of the times. Through an old friend in Egypt, he finally found a mask manufacturer in Egypt – the Pyramid Mask (PM). PM agreed to sell a machine that can produce 100,000 masks per day to Mr. Wong. They could also supply all the raw materials that were needed to manufacture the masks. As Mr. Wong is not a technical person, PM even agreed to send an engineer to Hong Kong for 3 months to solve all the problems that were expected in starting a new factory. However, PM insisted that the products must be sold under PM’s brand name and Mr. Wong had to pay a fee.

Based on the above case, identify the approach Mr. Wong used to go international.

As noted above, your CEO has traveled to London, UK to make a presentation to the company’s board of directors. Your company, Belleaqua, produces bottled water for consumer use in Canada. Recent negative publicity for the bottled water industry has caused your CEO to design a new bottle return policy for Belleaqua’s products. This would greatly reduce the amount of plastic currently finding its way to landfills and into the oceans. The first bottled water company to successfully launch such a program will be seen as a leader in environmental sustainability. The CEO needs to convince the board to invest $15M in developing and launching this program. This will significantly reduce corporate and shareholder earnings for 2019.

According to this plan, please design an outline of the presentation.The outline format is :

Audience:

Purpose:

Intro:

First Major Point:

1. Supporting Point One:
2. Supporting Point Two:
3. Supporting Point Three:

Second Major Point:

1. Supporting Point One:
2. Supporting Point Two:
3. Supporting Point Three:

Third Major Point:

1. Supporting Point One:
2. Supporting Point Two:
3. Supporting Point Three:

Conclusion: