AL DELTA Investment company is operating business in a dynamic and competitive market of the Far East. To cope with the dynamic variables of the demand and supply markets, the management of the company is quite conscious about the expected change in NWC, total assets and their implications on total liabilities of the company. Information on the current financial year (2019) and the budgeted data for the year 2020 could be summarized as follows:

1. Expected rate of growth of current assets                    14%
2. Expected positive change in fixed assets                      15%
3. Expected growth rate of NWC                                      17%
4. The total assets (year 2019)                                       $ 28000000

The relationship between current assets and fixed assets is depicted around the ration 3:2 respectively. Current liabilities amounted to $7000000 in year 2019. The company is planning to issue new shares in year 2020, provide that the amount should not exceed 16% of the equity in year 2019. ROTA is projected to be 9% in the coming year and the DPR is 44%. The depreciation rate will remain the same (10%) under the SLM. FA equals equity in year 2019.

Required:

1. As a consultant, find out the implications of change on liabilities in year 2020 and find out the total liabilities of the company
2. Give a concise comparison between êD and SI

The controller of Trenshaw Company wants to improve the company’s control system by preparing a month-by-month cash budget. The following information is for the month ending July 31, 2020.

Prepare cash budget for a month.

Trenshaw Company wants to keep a minimum cash balance of $25,000.

Instructions

a. Prepare a cash budget for the month ended July 31, 2020, and indicate how much money, if any, Trenshaw Company will need to borrow to meet its minimum cash requirement.

b. Explain how cash budgeting can reduce the cost of short-term borrowing.

(CGA adapted)

John Smith is the CEO of Alpha Manufacturing Pty Ltd. This company manufactures high value products in the form of small model aircraft jet engines that are mainly sold online.  The raw materials input for the Jet engines are a series of high value easily marketable items mainly exotic metals and electronic systems that support the engine controllers. There are five models of engine produced, each requiring about 25 components, including screws and fuel connectors. About ten of these components are made in house from the exotic raw materials. The controllers are assembled in house from about 10 electronic components and are common to all the engines. The business has been enjoying a long period of several years of continuous growth both in sales and profit. However, compared to the growth of sales net operating profit growth seems lower. John contracted with a business consulting firm to identify the reasons for this inconsistency. The consultants came up with a series of findings, the principal ones being:

• A poor inventory management system meant that it was impossible to properly identify the cost of production of the finished goods.
• The result is that management reports do not indicate the true costs of production.
• The Online Sales system was not integrated with either the inventory control system or the financial recording system.
• Alpha Manufacturing offered its own credit terms to customers but had no formal credit process.
• The computer system was linked to the internet to support the Online Sales System, but had no security system monitoring it.

In addition, the present accounting system is a hybrid of electronic and manual kept records. The result is that the growth rate of sales had diverged from the growth rate of net operating profit. The analyst has suggested redesigning the whole accounting process with a contemporary integrated accounting solution for the business.

John has taken the issue to the board and has decided to appoint you to implement an efficient automated accounting information system. As you have technical knowledge, you need to give a detailed plan about the new efficient information system including its possible cost and benefits. In addition, if the project plan is approved you need to implement this information system as project in-charge for the business.

You required

Following the receipt of your reports, John has attended a conference, in which salesmen from three organisations made sales pitches about outsourcing. As a result John is considering outsourcing the entire record keeping operation. Prepare a report for John detailing the advantages and disadvantages of continuing to run the information system in house with the different outsourcing arrangements such as arranging for an outsourcing vendor to own and operate a small onsite data centre for you, a service bureau, an applications service provider (ASP), Business Process Outsourcing (BPO), and software as a service (SaaS).

John Smith is the CEO of Alpha Manufacturing Pty Ltd. This company manufactures high value products in the form of small model aircraft jet engines that are mainly sold online.  The raw materials input for the Jet engines are a series of high value easily marketable items mainly exotic metals and electronic systems that support the engine controllers. There are five models of engine produced, each requiring about 25 components, including screws and fuel connectors. About ten of these components are made in house from the exotic raw materials. The controllers are assembled in house from about 10 electronic components and are common to all the engines. The business has been enjoying a long period of several years of continuous growth both in sales and profit. However, compared to the growth of sales net operating profit growth seems lower. John contracted with a business consulting firm to identify the reasons for this inconsistency. The consultants came up with a series of findings, the principal ones being:

• A poor inventory management system meant that it was impossible to properly identify the cost of production of the finished goods.
• The result is that management reports do not indicate the true costs of production.
• The Online Sales system was not integrated with either the inventory control system or the financial recording system.
• Alpha Manufacturing offered its own credit terms to customers but had no formal credit process.
• The computer system was linked to the internet to support the Online Sales System, but had no security system monitoring it.

In addition, the present accounting system is a hybrid of electronic and manual kept records. The result is that the growth rate of sales had diverged from the growth rate of net operating profit. The analyst has suggested redesigning the whole accounting process with a contemporary integrated accounting solution for the business.

John has taken the issue to the board and has decided to appoint you to implement an efficient automated accounting information system. As you have technical knowledge, you need to give a detailed plan about the new efficient information system including its possible cost and benefits. In addition, if the project plan is approved you need to implement this information system as project in-charge for the business.

Assessment Tasks:

Prepare a report for presentation to the board critically explaining the risks associated with the weaknesses of the current accounting system. The paper should also provide a detailed outline of what could be expected from a replacement system

Training Evaluation at Ryan Door Reinventing the Wheel at Ryan Door Company Jack Ryan, CEO of Ryan Doors, has a problem. No matter how often he tells his employees how to do their jobs, they invariably “decide to do it their way,” as he puts it, and arguments ensure between Jack, the employee, and the employee’s supervisor. One example is the door-design department, where the designers are expected to work with the architects to design doors that meet the specifications. While it is not “rocket science” as Jack puts it, the designers invariably make mistakes – such as designing in too much steel, a problem that can cost Ryan Doors tens of thousands of wasted dollars, once you consider the number of doors in a large office tower! The current training process is as follows: None of the jobs has a training manual per se, although several have somewhat out-of-date job descriptions. The training for new employees is on-the-job. Usually, the employee leaving the company trains the new person during a one or two week overlap timeframe, but if there is no overlap, the new employee is trained as well as possible by other employees who have filled in occasionally on-the-job in the past. Jack Ryan has decided to form a task force to help with the design and evaluation of a new training program for the design group. The task force is to submit recommendations based upon the following:

Explain in detail: What should be done to improve the training process at Ryan Door.

Identify in detail: a) the types of outcomes to use in evaluating the improved training process

Jane owns​100% of Carnate Corporation’s stock and also runs the company as its CEO. Carnate is a C corporation that expects to earn $420,000 before deducting any salary paid to Jane. Jane wants the corporation to pay her $230,000 for current year in pretax dollars. She is considering three different options: (1) a $230,000 dividend. (2) a $115,000 dividend plus a $115,000 salary, or (3) a $230,000 salary.

Any dividends qualify for the preferential capital gains tax rates. Jane​'s husband has no earnings of his own in the current​ year, so her income is the sole source for the family.Jane and her husband file a joint tax return and claim the $24,000 standard deduction.

​* The corresponding amounts if married filing separately are half of the amounts for filing jointly. The preferential rate is zero for taxable income up to

$ 38 comma 600$38,600

if married filing separately.

Calculate the total tax liability​ (corporate and​ individual) for each of the three​options, and determine which option results in the lowest overall tax.

Jerry is the CEO of XYZ Motors, a large automotive company that produces affordable four-passenger cars for the typical lower-income class family. Each model is typically driven only five years. The model from two years ago, the XYZ-8, which sold for $8,000, has been involved in four car crashes where the cars, when struck from the rear when the right blinker signal is activated, causes the fuel in the gas tank to ignite. There have been no fatalities, but several injuries. Victims have begun organizing into a class action lawsuit against the company.

A technician at the company discovered the issue with the blinker circuit soon after the last explosion was analyzed. He wrote the following memo to his superiors:

“We can recall each of the XYZ-8 models that we have sold and replace the blinker circuit with a new lining. It is highly likely this will correct the issue. This will lead to a cost to the company of $20 per car for the repair and an estimated $50 in lost labor revenues, since we cannot charge for the refit. There are an estimated 500,000 cars that are affected. Estimated cost to the company of this refit program: $35 million. If we do not act soon, there could be an estimated two explosions per year.”

Soon after reading this memo, Jerry gives his accounting department a hypothetical scenario: what would be the cost of settling a class action lawsuit out of court for ten low-income families? Estimating the present value of typical future earnings from a blue collar worker, aged 18 to retirement age of 65, the accountant gives a figure of $600,000 per family, amounting to a total settlement of $6 million.

Jerry orders his legal counsel to proceed with settling the class action lawsuit and does not inform his board of directors about the technician’s memo. Discuss.

Assume you are the CEO of a publically traded company. Your chief financial officer (CFO) informs you that your company will not be able to meet earnings per share targets for the current year. In that event your stock price will likely decline. The CFO proposes reducing the quarterly provision for uncollectible amounts (bad debt expense) to increase your EPS to the level analysts expect. This will result in an allowance that is less than it should be. The CFO explains that outsiders cannot easily detect a reduction in this allowance and that the allowance can be increased next year. The benefit is that your shareholders will not experience a decline in stock price.

1. Identify the parties likely to be affected by this proposed action.

2. How will reducing the provision for uncollectible accounts affect the income statement and the balance sheet?

3. How will reducing the provision for uncollectible accounts in the current period affect the income statement and the balance sheet in a future period?

4. What argument might the CFO use to convince the company's internal auditors that this action is justified?

5. How might an analyst detect this earnings management activity?

6. How might this action affect the moral compass of your company? What repercussions might this action have?

Mr. Hunter, CEO of MT Mining Company (MTMC), received a report from the engineering department. The report describes a proposed new mine on the North Ridge of MT. A gold mine had been discovered on the land owned by MTMC. The land is now leased to another company for $300,000 a year (opportunity cost). The lease is going to expire but can be renewed with the same condition. Tests indicated that this mine can produce 90,000 ounces gold for the first year and the production can increase 10 percent for the next four years then decreases 15 percent for next three years. The resources will be exhausted by the end of the eighth year.

MTMC is currently very conservatively financed. Mr. Hunter believes that MTMC can raise $60 million by issuing bond with 9 percent coupon interest rate. However, when the bond is issued, the market interest can fluctuate in the range of 7% to 11%.

The initial cost of the project includes the purchase of necessary machinery ($50 million), one-time environmental protection fee of $2.5 million, and designing fee of $6.5 million. The project needs $1 million as working capital.

The fixed operating cost of the mine is $850,000 per year. The mine needs to hire 20 engineers and managers, 200 workers at the beginning of the project. The average salary for engineers and managers is $40,000 for the first year and average wage for workers is $25,000 for the first year. Both salaries and wages will increase at a constant rate of 10%. The contracts signed with 10 of the engineers and managers are for four years. Starting from year 4, each year 20 workers will be transferred to other mines. The variable cost (excluding wages and salaries) for producing gold is $1.5 per ounce.

The machines will be depreciated by MACRS. According to MT Environment Protection Law, the mine must restore the site to its original environment condition. It is estimated that the cost of restoration will be $1.5 million. When the restoration is finished, the government will return $2 million of environmental fee.

The current price of gold is $300 per ounce. As for the gold price by the time when the project starts, there are three different opinions about the gold price in the future. Most people believe the price will remain the same as the present price. Optimists believe that the gold price will increase 10% while pessimists predict that gold price will further decline by 5%. MTMC is in the 35% tax bracket.

Now you are hired as CFO of MTMC. Mr. Hunter is asking you to make a project analysis and make a presentation to the board of directors within a week.

QUESTION: Should this project be accepted and why?

Mr. Hunter, CEO of MT Mining Company (MTMC), received a report from the engineering department. The report describes a proposed new mine on the North Ridge of MT. A gold mine had been discovered on the land owned by MTMC. The land is now leased to another company for $300,000 a year. The lease is going to expire but can be renewed with the same condition. Tests indicated that this mine can produce 90,000 ounces gold for the first year and the production can increase 10 percent for the next four years then decreases 15 percent for next three years. The resources will be exhausted by the end of the eighth year. MTMC is currently very conservatively financed. Mr. Hunter believes that MTMC can raise $60 million by issuing bond with 9 percent coupon interest rate. However, when the bond is issued, the market interest can fluctuate in the range of 7% to 11%. The initial cost of the project includes the purchase of necessary machinery ($50 million), one-time environmental protection fee of $2.5 million, and designing fee of $6.5 million. The project needs $1 million as working capital. The fixed operating cost of the mine is $850,000 per year. The mine needs to hire 20 engineers and managers, 200 workers at the beginning of the project. The average salary for engineers and managers is $40,000 for the first year and average wage for workers is $25,000 for the first year. Both salaries and wages will increase at a constant rate of 10%. The contracts signed with 10 of the engineers and managers are for four years. Starting from year 4, each year 20 workers will be transferred to other mines. The variable cost (excluding wages and salaries) for producing gold is $1.5 per ounce. The machines will be depreciated by MACRS. According to MT Environment Protection Law, the mine must restore the site to its original environment condition. It is estimated that the cost of restoration will be $1.5 million. When the restoration is finished, the government will return $2 million of environmental fee. The current price of gold is $300 per ounce. As for the gold price by the time when the project starts, there are three different opinions about the gold price in the future. Most people believe the price will remain the same as the present price. Optimists believe that the gold price will increase 10% while pessimists predict that gold price will further decline by 5%. MTMC is in the 35% tax bracket. Now you are hired as CFO of MTMC. Mr. Hunter is asking you to make a project analysis and make a presentation to the board of directors within a week.