Questions
How does the concepts of economies of scope and economies ofscale different in relation to...

How does the concepts of economies of scope and economies of scale different in relation to the merger of Strayer University and Capella University? What are the synergies that come from the economies of scope? What are the synergies that come from economies of scale?

In: Economics

Carina Ltd has acquired all the shares of Finn Ltd on 1 July 2019 for $...

Carina Ltd has acquired all the shares of Finn Ltd on 1 July 2019 for $ 225 000. The accountant for Carina Ltd, having studied the requirements of AASB 3 Business Combinations, realises that all the identifiable assets and liabilities of Finn Ltd must be recognised in the consolidated financial statements at fair value. Although he is happy about the valuation of these items, he is unsure of a number of other matters including pre-acquisition entries and business combination valuation reserves associated with accounting for these assets and liabilities. He has approached you and asked for your advice.

The financial statements of Finn Ltd showed the equity of Finn Ltd at acquisition date to be:

                                Share capital — 20 000 $5.10 shares                         $102 000

                                General reserve                                                                   40 000

                                Retained earnings                                                               60 000

All the assets and liabilities of Finn Ltd were recorded at amounts equal to their fair values at that date.

During the year ending 30 June 2020, Finn Ltd undertook the following actions:

•    On 10 September 2019, paid a dividend of $20 000 from the profits earned prior to 1 July 2019.

•    On 28 June 2020, declared a dividend of $20 000 to be paid on 15 August 2020.

  • On 1 January 2020, transferred $15 000 from the general reserve existing at 1 July 2019 to retained earnings.

Required

Write a report for the accountant at Carina Ltd advising on the following issues:

1.      Should the adjustments to fair value be made in the consolidation worksheet or in the accounts of Finn Ltd?                                                                                                                                             

2.     What is the purpose of the pre-acquisition entries in the preparation of consolidated financial statements? Explain.                                                                                                                            

3.      How to prepare the pre-acquisition entries at 1 July 2019.                                                     

4.      How to prepare the pre-acquisition entries at 30 June 2020.                                                    

In: Accounting

Accounting for Consolidation Carina Ltd has acquired all the shares of Finn Ltd on 1 July...

Accounting for Consolidation

Carina Ltd has acquired all the shares of Finn Ltd on 1 July 2019 for $ 225 000. The accountant for Carina Ltd, having studied the requirements of AASB 3 Business Combinations, realises that all the identifiable assets and liabilities of Finn Ltd must be recognised in the consolidated financial statements at fair value. Although he is happy about the valuation of these items, he is unsure of a number of other matters including pre-acquisition entries and business combination valuation reserves associated with accounting for these assets and liabilities. He has approached you and asked for your advice.

The financial statements of Finn Ltd showed the equity of Finn Ltd at acquisition date to be:

Share capital — 20 000 $5.10 shares $102 000
General reserve     40 000
Retained earnings     60 000

All the assets and liabilities of Finn Ltd were recorded at amounts equal to their fair values at that date.

During the year ending 30 June 2020, Finn Ltd undertook the following actions:
• On 10 September 2019, paid a dividend of $20 000 from the profits earned prior to 1 July 2019.
• On 28 June 2020, declared a dividend of $20 000 to be paid on 15 August 2020.
• On 1 January 2020, transferred $15 000 from the general reserve existing at 1 July 2019 to retained earnings.

Required
Write a report for the accountant at Carina Ltd advising on the following issues:

1. Should the adjustments to fair value be made in the consolidation worksheet or in the accounts of Finn Ltd?     


2.     What is the purpose of the pre-acquisition entries in the preparation of consolidated financial statements? Explain.     


3.      How to prepare the pre-acquisition entries at 1 July 2019.   


4.      How to prepare the pre-acquisition entries at 30 June 2020.     


In: Accounting

Crane Carecenters Inc. provides financing and capital to the healthcare industry, with a particular focus on...

Crane Carecenters Inc. provides financing and capital to the healthcare industry, with a particular focus on nursing homes for the elderly. The following selected transactions relate to bonds acquired as an investment by Crane, whose fiscal year ends on December 31.
2020
Jan. 1 Purchased at face value $1,554,000 of Javier Nursing Centers, Inc., 10-year, 5% bonds dated January 1, 2017, directly from Javier.
Dec. 31 Accrual of interest at year-end on the Javier bonds.

(Assume that all intervening transactions and adjustments have been properly recorded and that the number of bonds owned has not changed from December 31, 2020, to December 31, 2022.)
2023
Jan. 1 Received the annual interest on the Javier bonds.
Jan. 1 Sold $777,000 Javier bonds at 108.
Dec. 31 Accrual of interest at year-end on the Javier bonds.

1. Journalize the listed transactions for the years 2020 and 2023. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

2. Assume that the fair value of the bonds at December 31, 2020, was $1,709,400. These bonds are classified as available-for-sale securities. Prepare the adjusting entry to record these bonds at fair value. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

3. Based on your analysis in part (b), show the balance sheet presentation of the bonds and interest receivable at December 31, 2020. Assume the investments are considered long-term. Indicate where any unrealized gain or loss is reported in the financial statements.

In: Accounting

Analysis Tell us the existing asset classes and how they performed in the last 10 years?  Include...

  1. Analysis
    1. Tell us the existing asset classes and how they performed in the last 10 years?  Include some graphs.  
    2. How has your selected crypto performed lately? Risk and return graph.
    3. Why would you include a crypto in your portfolio?  Construct a portfolio using the global equity index and 1 crypto?  How did the portfolio perform?  Include S, T, Alpha as performance measures.  Compare the portfolio with one which has no crypto.
    4. Your daily data should be set from Jan 2018-March 2020.

In: Finance

HISTORY & ENVIRONMENT Eight years after “Community Hospital” (a pseudonym) was founded in the late nineteenth...

HISTORY & ENVIRONMENT
Eight years after “Community Hospital” (a pseudonym) was founded in the late nineteenth century, a group of disgruntled physicians left to create “Westbrook Hospital” (also a pseudonym) a mere three miles away. The circumstances surrounding Westbrook’s creation and the proximity of the facilities contributed to spirited competition for over a century.
However, Community and Westbrook now faced the same ominous trends, and executives in both organizations began to see each other as the source of a possible solution to coping with them. “We are projecting a 3% decline in admissions. We also have inflation hitting us hard…Big Medicaid and Medicare cuts are imminent. I heard that 40 hospitals in our state could go out of business over the next five years” (CEO, Community Hospital).
The local situation added additional threats. Rivalry in the area was poised to increase when two regional competitors, Montclair Health and Ridgeway Hospital (both pseudonyms), announced a strategic alliance. Soon, University Medical Center (the largest and most feared local competitor) announced plans to join the Montclair-Ridgeway alliance. “University Medical might buy a building not far from Westbrook and Community and turn it into a premier women’s center, which will put pressure on both of us. We need the merger to help counter these actions.” Overall, as one Community executive said, “Community and Westbrook are basically owned by the same community, have the same market, and the same status, so this merger makes a lot of sense.”
Almost immediately following the merger announcement, a variety of key parties began questioning the proposed union. Concerned that the merged entity would possess too much local market share, the state attorney general initiated informal fact finding and, eventually, an anti-trust investigation. His preference was that the two hospitals locate all activities on one site. Executives worried about the competitive implications: “The attorney general and others are suggesting that a single campus might bring greater cost savings than we are currently proposing. But we always run the risk of selling off one campus and then having a competitor come in and buy it up.
Insurers also contributed to the complexity of the merger context. As one executive noted, the merger initially had their support. However, after Community and Westbrook pondered the possibility of forming their own health maintenance organization (HMO), the region’s largest insurer publicly questioned the merger plan.
INTERNAL RESISTANCE
Doctors as a group were apprehensive about the merger: “All this merger and acquisition activity scares our doctors to death. It causes them to begin second guessing everything.” Two medical areas stood out as most complex: obstetrics and gynecology (OB/GYN) and cardiac care. Fierce rivalry had long existed between the two OB/GYN staffs. As a Westbrook executive noted, “Community and Westbrook OBs are like the Hatfields and McCoys shooting back and forth at each other. Always have been.” According to a Westbrook executive, “Since there are more OB docs at Community, there’s fear that they will dominate things if the merger happens.” Too, a possible compromise wherein the OB staffs would remain physically and structurally separate if the merger happened caused concern among cardiac doctors. An executive wondered, “Why should the cardiologists relocate if the OBs don’t?” Because cardiac care was a prominent area in both hospitals, stakeholders in these units had to be addressed carefully: “It’s an issue for our partnership, an issue for our merger consultants, an issue for the law firms, an issue for the doctors, and if we’re not careful, it will become an issue for the attorney general.” Rumors circulated that the OB/GYNs had retained an attorney to fight the merger (informal conversations). In an overt sign of discontent, small cards reading “Stop the Merger!” were glued to restroom ceilings.
Both teams indicated that surrendering their existing sense of “who we are as an organization” in favor of some new, shared identity was a challenge. A Community executive noted, “We’d like to move ahead looking like good marriage partners, but I’m not sure we’re compatible. We’re different. We take pride in the very differences that distinguish us.” “We have people who want to retain the identity of their own hospital. They have a lot invested in it, you see…Our doctors and nurses, for instance, are happy to be a part of this institution. Their identity is wrapped up in it. Our administrators have put their hearts and souls into making the organization what it is.” A Westbrook executive made it clear that the merger “. . . is a threat to our legacy. We don’t want to scrap the rich tradition of our hospital. We have alumni who are concerned about retaining our old identity.” The possibility that the merger might not materialize also encouraged members to hold onto their old identities.
Doubt was also created as each made comparisons of their team and organization to the other team and organization that cast the partner in negative terms. In fact, in their meetings, both teams discussed their differences nearly five times as often as their similarities.
“We are having problems working with Westbrook because our technology is more streamlined, so we make faster decisions than they do.”
“Community’s administrative model makes a big glob of administrative overhead horribly visible. We’ve been more thoughtful about it.”
“I don’t think Westbrook’s medical staff is as quality as ours. Simply put, their standards are lower. . . I think the public perceives a difference.”
“As for Westbrook’s top management team, I wouldn’t hire any of them.”
An impasse also arose whenever the topic of a name for the merged organization came up. Community executives, especially their CEO, wanted to base the new name on Community’s name: “With our long-standing reputation in the community and the cachet of our brand, I am convinced that ‘Community’ should be in the new name.” There was a logical business rationale for such a move: a consultant’s report revealed that competitors would gain some advantage if Community’s strong brand name were abandoned. Yet any attempt to preserve “Community” while dissolving the Westbrook name could undermine the partnership. As one Westbrook executive pointedly said, “If Community’s name is used, then ours should be, too, or the idea of a merger between equals is a sham.” Community executives were sensitive to the fact that naming the new entity was as much a political as a strategic decision. As one noted, “We don’t want to spend tons of money on naming . . . but we may have to, just to avoid a big fight.”
COMMON GROUND?
A pivotal event occurred in a meeting of the two executive teams when Community’s CEO unexpectedly offered “Newco” as a temporary, generic label for the imagined future organization: “We need some sort of name for the thing we are talking about, even if it’s temporary, so I’m suggesting a generic name.” A discussion about the merger had begun to stall, and the offering of Newco was an attempt to keep it moving. In a follow-up interview, Community’s CEO said that, as this particular discussion stagnated, he realized that the existing attachments held by the executive team members on both sides were so strong that they had to be circumvented before people “could begin to think in terms of surrendering their allegiances and becoming a merged organization with a different identity.”
The Newco concept was quickly adopted by both executive teams as a representation of the future merged organization in their oral and written communications. Newco connoted a general, non-partisan identity with which executives could associate when trying to envision the new organization. A Westbrook executive captured this notion when he said, “Newco focuses everyone’s attention in one place, and that’s what we need right now. Newco helped to encourage a shift away from the prevailing us vs. them to a we mode of understanding the ‘who will we be’ question.”
Although Newco’s attributes were sparse (“lean,” “agile,” “proactive,” and “strategic”), the transitional identity permitted the executive teams to act as if the merger were really going to occur, even though a workable merger was not definite for much of the time that negotiations were taking place. Community’s CFO, for instance, said, “it helps us put all this emotionalism behind us; now we’re starting to think like Newco and talk like this thing can actually work.” The idea of Newco evolved from a “placeholder” used when discussing the merger (months 6–7) to a symbol of the future organization whose features were beginning to be defined, even as debate over a permanent name played out (months 8–9), and then to a common referent and focus of shared interests between the teams during the quiet period (months 10–11). A month after the consent agreement was signed, a new, permanent name was finally selected.
Westbrook’s CEO summarized the situation at a broad level: [The merger] raises so many questions about whose interests are being served. You have the medical staff, consultants, managers, and others making decisions. Then you have to cope with the politics of all these groups interacting. There are so many different influences at play, each with their own agenda. We need to convey a coherent image to all of them. Given this complex milieu, it was vital for the teams to communicate a consistent image to stakeholders, which led the executive teams to further downplay their differences and emphasize their emerging identity as members of Newco.
The communal sense of a Newco organization intensified when the attorney general again said that he favored an alliance between Community and Westbrook instead of a merger (archives; interviews). This stance worried both sets of executives, who reiterated that a merger would create many more efficiencies and more competitiveness for both hospitals. Community and Westbrook executives came to share a belief that, as Newco, they needed to manage meaning for the attorney general. It also helped to unite them against a common “enemy.”
EPILOGUE
After a six-month formal review, the state signed a consent agreement permitting the Community-Westbrook merger; Federal Trade Commission approval followed. With the aid of consultants, a permanent name was chosen: Synergy Health System (another pseudonym). The broadly articulated features of Newco were retained in the new organization - “lean,” “agile,” “proactive,” and “strategic” - although they became more elaborated and specified. In a follow up interview with the Community and Westbrook CEOs several years after the merger, it was noted that although a shared identity emerged, it took some time before the other identities (Community, Westbrook, and Newco) receded. Most importantly, perhaps, they noted that Newco evolved into Synergy, and the identity of Synergy “looks a lot more like Newco than either [Community] or [Westbrook],” suggesting that a relatively lasting identity change had indeed taken place.
Q1: If the merger seems to make strategic sense (synergies), why is there such difficulty in executing the strategic change initially and What ultimately allows the executives to successfully execute the change? Why?

In: Operations Management

Question from: International Accounting, Fourth Edition Company ABC acquired a piece of equipment in Year 1...

Question from: International Accounting, Fourth Edition

Company ABC acquired a piece of equipment in Year 1 at a cost of $100,000. The equipment has a 10-year estimated life, zero salvage value, and is depreciated on a straight-line basis. Technological innovations take place in the industry in which the company operates in Year 4. Company ABC gathers the following information for this piece of equipment at the end of Year 4:

Expected future undiscounted cash flows from continued use: $59,000

Present Value of expected future cash flows from continued use: $51,000

Net selling price in the use equipment market: $50,000

At the end of Year 6, it is discovered that the technological innovations related to this equipment are not as affective as first expected. Company ABC estimates the following for this piece of equipment at the end of Year 6.

Expected future undiscounted cash flows from continued use: $50,000

Present Value of expected future cash flows from continued use: $44,000

Net selling price in the use equipment market: $42,000

a. Discuss whether Company ABC must conduct an impairment test on this piece of equipment at Dec 31, Year 4..

b. Determine the amount at which Company ABC should carry this piece of equipment on its balance sheet at December 31, Year4; December 31, Year 5; and December 31, Year 6. Prepare any related journal entries.

In: Accounting

Vernon Construction Company began operations on January 1, 2019, when it acquired $14,000 cash from the...

Vernon Construction Company began operations on January 1, 2019, when it acquired $14,000 cash from the issuance of common stock. During the year, Vernon purchased $2,500 of direct raw materials and used $2,400 of the direct materials. There were 106 hours of direct labor worked at an average rate of $6 per hour paid in cash. The predetermined overhead rate was $3.00 per direct labor hour. The company started construction on three prefabricated buildings. The job cost sheets reflected the following allocations of costs to each building:

Direct Materials Direct Labor Hours
Job 1 $ 400 26
Job 2 1,000 52
Job 3 1,000 28

The company paid $68 cash for indirect labor costs. Actual overhead cost paid in cash other than indirect labor was $236. Vernon completed Jobs 1 and 2 and sold Job 1 for $1,254 cash. The company incurred $140 of selling and administrative expenses that were paid in cash. Over- or underapplied overhead is closed to Cost of Goods Sold.

Required

Record the preceding events in a horizontal statements model. The first event for 2019 has been recorded as an example.

Reconcile all subsidiary accounts with their respective control accounts.

Record the closing entry for over- or underapplied manufacturing overhead in the horizontal statements model, assuming that the amount is insignificant.

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2019.

In: Accounting

On July 1, 2017, Bramble Ltd., a publicly listed company, acquired assets from Sheffield Ltd. On...

On July 1, 2017, Bramble Ltd., a publicly listed company, acquired assets from Sheffield Ltd. On the transaction date, a reliable, independent valuator assessed the fair values of these assets as follows: Manufacturing plant (building #1) $399,930 Storage warehouse (building #2) 209,860 Machinery (in building #1) 75,000 Machinery (in building #2) 44,860 The buildings are owned by the company, and the land that the buildings are situated on is owned by the local municipality and is provided free of charge to the owner of the buildings as a stimulus to encourage local employment. In exchange for the acquisition of these assets, Bramble issued 145,900 common shares. Bramble shares are thinly traded, and in the most recent sale of Bramble's shares on the Toronto Stock Exchange, 520 shares were sold for $5 per share. At the time of acquisition, both buildings were considered to have an expected remaining useful life of 10 years, the machinery in building #1 was expected to have a remaining useful life of 3 years, and the machinery in building #2 was expected to have a useful life of 9 years. Bramble uses straight-line depreciation with no residual values. At December 31, 2017, Bramble fiscal year end, Bramble recorded the correct depreciation amounts for the six months that the assets were in use. An independent appraisal concluded that the assets had the following fair values: Manufacturing plant (building #1) $386,830 Storage warehouse (building #2) 177,810 At December 31, 2018, Bramble once again retained an independent appraiser and determined that the fair value of the assets was: Manufacturing plant (building #1) $339,970 Storage warehouse (building #2) 159,500 Prepare the journal entries required for 2017 and 2018, assuming that the buildings are accounted for under the revaluation model (using the asset adjustment method), and that the machinery is accounted for under the cost model.

In: Accounting

Newcomb Manufacturing Company was started on January 1, Year 1, when it acquired $5,000 cash from...

Newcomb Manufacturing Company was started on January 1, Year 1, when it acquired $5,000 cash from the issue of common stock. During the first year of operation, $1,600 of direct raw materials was purchased with cash, and $1,200 of the materials was used to make products. Direct labor costs of $2,000 were paid in cash. Newcomb applied $1,280 of overhead cost to the Work in Process account. Cash payments of $1,280 were made for actual overhead costs. The company completed products that cost $3,200 and sold goods that had cost $2,400 for $4,000 cash. Selling and administrative expenses of $960 were paid in cash.

Required

  1. Prepare T-accounts and record the events affecting Newcomb Manufacturing. Include closing entries.

  2. Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet.

In: Accounting