Consider the managers of two organizations. Organization 1 is a government agency and its manager, the CEO, is employed by the federal government financed by the taxpayers. It may be a regulatory agency. Organization 2 is a private for-profit business and its manager, the CEO, is employed by the board of directors appointed by the shareholders and financed by the earnings of the company. How does the position of these two managers differ with respect to the following?

1.The incentives they face

2.How they are held accountable and how their performance is judged

3.How they receive feedback good and bad

4.How their performance is related to the people they are supposed ultimately to serve.

Rick is lead scientist for X Ltd, a pharmaceutical company that is working on a Covid-19 vaccine. Developing a vaccine requires a great deal of trial and error, creativity, and there is no guarantee of project success. Indeed, in more general pharmaceutical production, only about 1 in 10,000 projects are ultimately successful.

Required:

The CEO of X Ltd is concerned about Rick's performance on the Covid-19 project, costs are high and there is no guarantee of success. The CEO wants to implement a control system to measure Rick's performance. Evaluate the use of "Personnel Controls" as part of a control system to assess Rick's performance.

Rick is lead scientist for X Ltd, a pharmaceutical company that is working on a Covid-19 vaccine. Developing a vaccine requires a great deal of trial and error, creativity, and there is no guarantee of project success. Indeed, in more general pharmaceutical production, only about 1 in 10,000 projects are ultimately successful.

Required:

The CEO of X Ltd is concerned about Rick's performance on the Covid-19 project, costs are high and there is no guarantee of success. The CEO wants to implement a control system to measure Rick's performance. Evaluate the use of "Action Controls" as part of a control system to assess Rick's performance.

1. On July 1, 2019 IT Corp acquired a machinery worth Php 2,500,000 from DIKO Co. Term of the contract calls for a downpayment of Php 500,000 and signing a 2 year 10% note payable for the balance. Interest is payable quarterly. The existing loan agreement does not carry a provision to refinance. During September, IT Corp was experiencing financial difficulty due to COVID-19 and was unable to pay the periodic Interest. a. What amount of current liability should IT Corp report in its December 31, 2019 balance sheet assuming DIKO Co. agreed at balance sheet date not to demand payment as a consequence of the breach? b. What amount of current liability should IT Corp report in its December 31, 2019 balance sheet assuming DIKO Co. agreed to provide a grace period ending at least twelve months to rectify the breach? 2. A truck owned and operated by BASICzxc Company was involved in an accident with an auto driven by Julian on January 12, 2019. BASICZxc Company received notice on April 24 2019 of a lawsuit for Php 800,000 damages for a personal injury suffered by Julian. BASICZXC
2. A truck owned and operated by BASICzxc Company was involved in an accident with an auto driven by Julian on January 12, 2019. BASICzxc Company received notice on April 24, 2019 of a lawsuit for Php 800,000 damages for a personal injury suffered by Julian. BASICzxc Company counsel believes it is reasonably possible that Julian will be successful against the company for an estimated amount in the range between Php 100,000 and Php 400,000. No amount within this range is a better estimate of potential damages than any other amount. It is expected that the lawsuit will be adjudicated in the latter part of 2020. What amount of loss should BASICzxc Company accrue at December 31, 2019?

From Harvard Business HBX CORe 2020 May - Financial Accounting - Module 7

Share a link to a news report of a company where the financial forecast went spectacularly wrong and describe what you find particularly interesting or notable about it.

Comprehensive Problem: Consolidation Working Paper and Financial Statements Pierre

Corporation acquired 75 percent of Selene Corporation’s common stock for $20,100,000 on January 2,

2017. The estimated fair value of the noncontrolling interest was $5,900,000. Selene’s book value at date

of acquisition was $10,000,000, and its identifiable net assets were fairly stated except for previously

unreported completed technology, valued at $4,000,000, with a remaining life of 5 years, straight‑line. It

is now December 31, 2020, and you are preparing consolidated financial statements for Pierre and Selene.

Following is information on intercompany transactions

1. On January 2, 2018, Pierre sold equipment to Selene for $6 million and recorded a gain of $2 million.

The equipment had a remaining life of 10 years at that time.

2. Selene supplies Pierre with component parts for its products, at a markup of 20 percent on cost.

During 2020, Selene made sales totaling $20 million to Pierre. Pierre had parts purchased for $1.8

million and $2.4 million in its 2020 beginning and ending inventory balances, respectively.

3. Pierre sells materials to Selene for use in its manufacturing processes, at a markup of 20 percent on sell‑

ing price. During 2020, Pierre made sales totaling $15 million to Selene. Selene had materials purchased

for $3 million and $2.8 million in its 2020 beginning and ending inventory balances, respectively

Goodwill arising from this acquisition was impaired by $3 million during the years 2017–2019, and no

further goodwill impairment occurred in 2020. Pierre uses the complete equity method to report the in‑

vestment in Selene on its own books. The separate December 31, 2020, trial balances of Pierre and Selene

appear below, before Pierre’s end‑of‑year adjustment to record its equity in Selene’s net income and other

comprehensive income for 2020.

in thousands) Pierre Selene

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ 2,500

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600 10,000

Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 30,000

Investment in AFS debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 6,000

Plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,000 144,000

Investment in Selene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,225 —

Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,000) (2,800)

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (489,825) (163,700)

Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000) (2,000)

Retained earnings, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (88,500) (19,600)

Accumulated other comprehensive income, January 1. . . . . . . . . . . . . . . . . . (1,500) (400)

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 3,000

Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,000) (50,000)

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 35,000

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,500 7,900

Unrealized losses on AFS investments (other comprehensive income). . . . . . 500

100

Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0

Required

a. Calculate the total goodwill arising from this acquisition and its percentage allocation to the control‑

ling and noncontrolling interests.

b. Prepare a schedule calculating Pierre’s equity in the net income of Selene for 2020, and the noncon‑

trolling interest in Selene’s net income for 2020.

c. Update Pierre’s trial balance for its 2020 equity method entries and prepare a working paper consoli‑

dating the 2020 trial balances of Pierre and Selene.

d. Present the consolidated financial statements of Pierre and Selene, in proper format

Sandhill Machinery Corporation, a private company following ASPE sold manufacturing equipment for $2,100 each. Each machine carried with it a 2-year warranty against manufacturing defects. From experience, Sandhill Machinery Corporation determined that each machine sold would average $253 in replacement parts. In 2020, the company sold 1,000 machines. Also in 2020, the company incurred $125,000 in total repair costs (the cost of replacement parts from inventory). Sandhill Machinery Corporation also sold an extended warranty for its machines. For $430, customers could purchase an extended warranty that extended the warranty on the machine for an additional 2 years. 800 of the customers that bought machines also purchased the extended warranty. Assume the revenue is earned evenly over the two-year contract. Using the Revenue Approach, prepare the journal entry to record the sale of the machines and extended warranties. (Ignore any cost of goods sold entry).Using the Revenue Approach, prepare the journal entry to record the warranty costs incurred during 2020.

Using the Revenue Approach, prepare the journal entry to record the year-end adjusting entries at December 31, 2020,for the assurance-type warranties assuming Sandhill’s year-end is December 31. Using the Revenue Approach, prepare the journal entry to record the year-end adjusting entries at December 31, 2022 for the service-type warranties. (Note: assume that the cost of repairs has already been recorded during 2022 and prepare any other adjusting entry needed). (

3. John Deere is operated as a C corporation. The company received an order for a $12,000 tractor from a customer on June 30, 2020 and delivered the tractor to the customer on July 31, 2020. The company sent the customer a bill saying they had to pay for the tractor by no later than January 31, 2021. John Deere uses a calendar year tax period. Based on phone calls with the customer in December of 2020, the customer explained that it may have to file bankruptcy proceedings but was trying to work its way out of financial hardship before taking that option. The customer said that at worst it would be able to pay at least $9,000 of the bill. On January 15, 2021, John Deere received a check from the customer for $9,000 and was informed it would receive no additional payment based on the outcome of the bankruptcy case. In addition to the transaction above, the following occurred:

• A different customer paid for the same type of tractor (at $12,000) on November 1, 2020 and scheduled delivery for January 15, 2021. John Deere included the income in its 2020 financial accounting statements.
• The company both incurred and paid expenses for the following in 2020:
  • Wages:                                                                               $3,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $2,000
• The company both incurred and paid expenses for the following in 2021:
  • Wages:                                                                               $4,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $3,000

1. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
2. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
3. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
4. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
   
   
   
   
   
   
   
5. (8 points) How should the sum of the 2020 and 2021 accrual method net profit (loss) total relate to the sum of the 2020 and 2021 cash method net profit (loss) total (i.e. how should the sum of your answers in a. and b. relate to the sum of your answers in c. and d.)?
   Circle the best answer below.
   i. The sum of the two years for the accrual method should be greater than the sum of the
       two years under the cash method.
   ii. The sum of the two years for the accrual method should be less than the sum of the
       two years under the cash method.
   iii. The sum of the two years for the accrual method should be equal to the sum of the
       two years under the cash method.
   

Consider each of the following independent and material situations. In each case:

• the financial report date is 31 December 2019;

• the field work was completed on 12 February 2020;

• the directors declaration and the audit report were signed on 19 February 2020; and

• the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020

A. You are an auditor pf PP Limited (PP), a company specialising in industrial property development. On 10 February 2020, you become aware that a major overseas investor has informed the management of PP of their intention to withdraw their investment in a proposed major development. On the basis of its discussions with the investor and previously pledged funds from them, PP has incurred substantial costs in feasibility studies, structural engineering reports and architectural plans. A significant portion of these costs has been capitalised. The management is dependent on finding a new investor to be able to meet these expenses and to continue with the project.

B. You are the auditor of XY Limited (XY), a manufacturing client. XY has plans to upgrade its manufacturing process and plans to finance this by a sale of property which is superfluous to its needs, situated next to its head office. The property has been subdivided for the purposes of the sale and placed on the market in December 2019. On 25 January 2020, the state government approved a plan for the construction of an express freeway. The plan will result in the appropriation of a portion of the property owned by XY and subdivided for the purpose of sale. Construction of the freeway will begin in late 2020. No estimate of the compensation payment is available.

C. You are an auditor of Q limited (Q), a major public company involved in the property development industry. Prior to signing your audit report you sought a letter of comfort from Q’s bankers that the bank would continue to support Q by providing finance over the coming year. The bank agrees that it would continue to provide finance. It was your view that without such support Q had severe cash flow problems and the financial report would need to be modified with respect to a going concern assumption. On 15 March 2020, the company’s bankers wrote to you advising that the company had breached its loan covenant with the bank in February 2020 and that the loan facility was now due and payable and would not be renewed.

D. You are the auditor of Turbo Limited (Turbo), a professional services client. On 15 January 2020, Turbo settled and paid a personal injury claim to a former employee as the result of an accident that occurred in September 2017. The company had not previously recorded a liability for the claim. E. You are the auditor of Charge Limited (Charge), an automobile parts manufacturer. On 2 February 2020, Charge agreed to purchase for cash the outstanding shares of Electronic Fuel Injection Limited. The acquisition is likely to double the sales volume of Charge.

Required: For each of the events A to E:

1. Outline the required treatment in the financial report, if any. Justify your answer.