Some companies give their CEOs golden parachutes—large bonuses if the company is sold to an acquirer and the CEO loses his or her job. Does this practice sound like a sensible incentive scheme to you? Why or why not?What are the issues?

Find an example of a publicly-traded company that lists two risk factors in their 10-K that you think will become greater liabilities for them in the near future. If you were the CEO, how would you mitigate those risks?

The new CEO of Everton Sdn Berhad, a company in the furniture sector would like to know the usefulness of key financial ratios that would be crucial for his management team to consider and analyse for the purpose of acquiring another entity in a similar industry.

O’Brien Company is in the process of closing its books at the end of 2020. The company's preliminary income statement for 2020 and its reported income statement for 2019 are given below.

O’Brien's records reveal the following information:

1. In examining the preliminary financial statements, O’Brien realized that it failed to accrue sales commissions at the end of each of the last two years. O’Brien should have accrued $3,500 at the end of 2019 and $2,500 at the end of 2020.

2. O’Brien purchased equipment on January 2, 2017, that cost $70,000 and had a useful life of 10 years and zero salvage value. The straight-line method of depreciation was originally chosen. However, in reviewing the preliminary financial statements, O’Brien decided to change the depreciation method from straight-line to sum-of-the-years'-digits; the estimates relating to useful life and salvage value remained unchanged.

3. At the end of 2020, O’Brien decided to change its inventory costing method from FIFO cost to the Average method. An analysis of the accounting records provides the following cost of goods sold amounts under average cost and FIFO:

                                    Year                     FIFO             Average

                                    2018                 426,500            428,000

                                    2019                 428,750            430,000

                                    2020                 427,500            432,000

O’Brien purchased equipment on July 2, 2016. The asset's original cost was $30,000, and this amount was entirely expensed in 2016. This particular asset has a 10-year useful life and a $5,000 residual value. The straight-line method was chosen for depreciation purposes.

Required:

1. Prepare the necessary journal entries at December 31, 2020, to record the above information.

2. Prepare new comparative income statements to reflect the adjustments required (1) through (4) above. You may ignore income taxes.

3. Retained earnings reported for the end of 2019 was $696,380 and at the end of 2018 was $625,400. Dividends of $30,000 were declared in each year. Prepare comparative statements of retained earnings for O’Brien Company for 2020 and 2019, reflecting appropriate adjustments from items (1)-(4) above, ignoring income taxes.

Ultimate Office Products was an old, established manufacturing company in the turbulent office products industry. Discount merchandisers and office product superstores were spreading rapidly and altering the traditional distribution channels once dominated by wholesalers and smaller retail stores. The growing power of the superstores was forcing manufacturers to improve customer service. The traditional manufacturers were being challenged by new companies more willing to cut prices and use technologies favored by the superstores, such as electronic orders and billing. Ultimate Office Products was losing market share and profits were declining.

Richard Kelly was the director of information systems, a newly created position in the company. When the CEO met with Richard to discuss his new responsibilities and objectives, she explained that it was essential to speed up order processing and improve customer service. Richard knew that the order processing system used by the company was obsolete. He prepared a plan to automate the system and got approval from the CEO for it. Then, he purchased new computer workstations and a software package to support them. The software would enable customers to make electronic orders, and it would improve order processing, billing, and inventory control. However, months after the equipment and software arrived, it was still waiting to be used. The managers from sales, production, accounting, shipping, and customer service could not agree about the requirements of the new system, which was necessary to get it operating. These managers were Richard’s peers, and he had no direct authority over them. Even though he encouraged cooperation, meetings among the managers usually ended with heated accusations about who was responsible for the company’s problems. Most of the managers disagreed about the reason for the delays in filling orders, and some questioned the need for an expensive new system. Meanwhile, the CEO was becoming impatient about the lack of progress. She made it clear that, after spending a small fortune on new technology, she expected Richard to find a way to resolve the problem. Richard decided it was time to take a different approach.

His first step was to gather more information about the reasons for delays in processing and filling orders. He began by having his staff map the workflow from the time orders were received until the filled orders were shipped. As he suspected, many unnecessary activities created bottlenecks that could be eliminated to speed up the process. The problems extended across functional boundaries and required changes in all departments. The preliminary results were presented to the CEO, who agreed on the need for dramatic improvements and authorized Richard to begin reengineering the process. Despite having the support of the CEO, Richard knew that widespread commitment would be needed for major changes to be successful. Richard met with the department managers to get their assistance in forming some cross-functional task forces. Although he knew that one task force would probably be enough to determine what changes were needed, he wanted to involve more people in the change process so that they would understand and support it. An outside consultant was secured to advise the task forces in their work. Each task force examined a different aspect of the problem. They analyzed processes, met with key customers to learn what they wanted, and visited other companies to learn how they processed orders more efficiently. As people began working together to understand the system, they began to realize how serious the problems were. The participants were able to put aside their functional biases and cooperate in finding ways to improve efficiency and customer service. Each team made recommendations to the steering committee, composed of Richard and the department managers. The CEO also attended these meetings to emphasize their importance. When one of the department managers opposed a change, everyone in the meeting looked at the CEO, who made it clear that she supported the task force recommendation. Within a year, the company eliminated many of the steps formerly required to process an order, and the average number of days to fill an order was reduced by nearly half. Many more orders were being made electronically, and most mistakes in the billing process were eliminated. As people discovered that they could actually change things for the better, many of them volunteered to serve on teams that would continue to look for ways to improve quality and customer service.

Questions

a.     Why did Richard fail in his first attempt to implement change?
b.     Identify subsequent actions by Richard that were more effective for implementing change in the organization.
c.     Evaluate the change leadership provided by the CEO.

The DeVille Company reported pretax accounting income on its income statement as follows: 2018 $ 415,000 2019 335,000 2020 405,000 2021 445,000 Included in the income of 2018 was an installment sale of property in the amount of $56,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $22,400 in 2019, $28,000 in 2020, and $5,600 in 2021. Included in the 2020 income was $23,000 interest from investments in municipal bonds. The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond. Required: Prepare the year-end journal entries to record income taxes for the years 2018–2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The DeVille Company reported pretax accounting income on its income statement as follows: 2018 $ 355,000 2019 275,000 2020 345,000 2021 385,000 Included in the income of 2018 was an installment sale of property in the amount of $30,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $12,000 in 2019, $15,000 in 2020, and $3,000 in 2021. Included in the 2020 income was $10,000 interest from investments in municipal bonds. The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond. Required: Prepare the year-end journal entries to record income taxes for the years 2018–2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The DeVille Company reported pretax accounting income on its income statement as follows:
   

   
Included in the income of 2018 was an installment sale of property in the amount of $34,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $13,600 in 2019, $17,000 in 2020, and $3,400 in 2021.

Included in the 2020 income was $12,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2018–2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The DeVille Company reported pretax accounting income on its income statement as follows:
   

   
Included in the income of 2018 was an installment sale of property in the amount of $54,000. However, for tax purposes, DeVille reported the income in the year cash was collected. Cash collected on the installment sale was $21,600 in 2019, $27,000 in 2020, and $5,400 in 2021.

Included in the 2020 income was $22,000 interest from investments in municipal bonds.

The enacted tax rate for 2018 and 2019 was 30%, but during 2019 new tax legislation was passed reducing the tax rate to 25% for the years 2020 and beyond.

Required:
Prepare the year-end journal entries to record income taxes for the years 2018–2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.