Question 10

The comparative balance sheets for Rothlisberger Company as of December 31 are presented below.

Additional information:

***Prepare a statement of cash flows for the year ended December 31, 2020, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Scenario

Pigs R Us is a second generation, family-owned Richmond-based company with about 400 employees. It slaughters, manufactures, and sells pork food products.  Pigs R Us (PRU) is a low-tech, hands-on, “bricks and mortar” type of company with solid brand recognition, an impeccable reputation for high quality and ethical standards. The processes used in manufacturing are with the highest ISO20002 standards, and the plant is maintained immaculately. The personnel are comprised of an older work force (average employee age is late 40s). There is little staff turnover, though lately there have been a diverse group of younger workers joining the company. There has been an impressive record of speedy state and federal new-product approvals, and solid working relationships with their large and small customers.

The company prides itself on the close "southern family," culture of the business. The company logo features a pig with a smile on its face surrounded by small pictures of some of its oldest serving employees. The organization's structure is “old-fashioned”. It is hierarchical with rigid management divisions and reporting policies. Research, manufacturing, and sales and marketing operate in traditional fashion, with employees reporting to supervisors or mid-level managers. By the 1990s, sales and distribution grew from Richmond into a regional market, establishing a competitive advantage throughout the US South. Despite downward economic times in the US and the South, the pork business does well. This is due largely to the fact that Pork is one of the cheaper meat products and there is a variety of ways it can be prepared.

Owned by the Morris family for the last 60 years, Pigs R Us is a key player in the Richmond based food industry. Various Morris family members sit on the board of charities throughout the city and it is not unusual to see the name at society events. Further, the Company sponsors its own Little League Team and has built a recreation center and assisted living facility for the elderly, guaranteeing space for all former 20+ year veteran workers of the company for free. So, it was no surprise, that the whole community was devastated when it was announced by the Morris family that Vance Morris the CEO of Pigs R Us was killed while driving back from a Pigs R US board meeting. The plant closed for a week to show respect and to determine how it would function until the family could make its succession decisions.

Vance Morris was the only son of James and Kathleen Morris. Vance took over the business 10 years before when his father had a heart attack and died. Fresh out of graduate school when his father died. He took over the business that he had known well much to the pleasure and keen eye of the workers. Vance made some marketing changes that allowed for the growth of the company and with the help of the employees brought the plant into its current state. Vance had just gotten married the year before to a young Richmond artist he had met at one of his charity benefits. He had no heirs and no plans for succession as he was in his mid-thirties and had just gotten married. While Vance had cousins in the area they were all professional people who knew nothing about business or pork. The workers could only surmise that the company would be sold, but speculation as to whom it might be did not include someone from out of the city.

Before the deal was announced publicly, John’s widow, Arleen, reported to the workers that a Chinese company, Shanghou (SHU), would be buying Pigs R US. Mrs. Morris assured the workers that the SHU promised not to cut workers' wages and benefits, and to keep the current management team in place. She said that SHU also promised to keep Pork R US headquarters in Richmond. Arleen assured the workers that SHU promised that there would be no changes for the first year and that almost everything would remain the same. From her talks with SHU, Arleen is a bit worried about future changes that SHU may implement.

SHU is a large manufacturer and distributor of food and beverages with, headquarters in Hong Kong. Manufacturing plants operate in mainland China, and the company has additional offices in Europe and Australia. By acquiring the smaller, well-respected Pork R US, SHU aims to diversify and expand its consumer base by including tailor-made pork products globally to meet market projections of a customer upsurge in sustainable, non-beef meats in the next decade. Given SHU’s current availability of telecommunications software and hardware, the deployment of the Pigs R US refrigeration trucks should not be an insurmountable issue.

Many PRU employees, especially the older workers and some of the older managers, are dispirited about the acquisition, and anxious about working for foreigners, downsizing, less face-to-face interaction, language differences, and more electronic systems that are to be put in place. Some of the of the more experienced workers are considering a move or an early retirement due to the ongoing rumors about the acquisition. To make matters worse, recent news media have printed stories about tainted food made by other companies in China. Employees fear loss of product quality and damage to PRU’s reputation as well as the loss of the family southern culture that was their pride and joy.

SHU has told PRU workers that for now, most employees will be retained. However, all employees will be evaluated, and reassigned to teams as the new flat structure is put in place. The new CEO is Harvard-educated Daniel Chinn. He supports increasing the company's competitive edge by discovering and developing existing individual potential through group collaboration and team synergy. Ever since his days as a brilliant, hard-driving MBA student; he has been known to be an enthusiastic supporter of job training and career growth. Like many of SHU’s employees, David is in his early thirties. He speaks four languages and is ambitious, self-directed, tech-savvy, accustomed to working remotely, and experienced with a culturally diverse staff. David is eager to make his newest acquisition a success. He wants to move forward on the integration of "Pork R US’ workers into SHU because Chinn believes they are the “greatest asset have a rich knowledge base and experience can be tapped into to bring the company success." Chinn is concerned about the mix of culture and how his ideas of incorporating artificial intelligence and more robotics into the manufacturing processes will be received by management and the workers at the newly acquired plant.

Daniel Chinn is anxious to keep the “southern family” culture of Pigs R Us but at the same time wants to use the most modern of manufacturing techniques. He decided that the best way to do this was to start a pilot change operation in the packaging area to demonstrate to the workers the effectiveness of technology. He bought and set up for use 3D printers in the packaging room. The printers were able to create reusable shipping materials and operate in conjunction with the product conveyor for fast and easy packaging. He brought in two trained 3D printer operators from China to handle the work along with two robots that would move the package material and create shrink-wrapped pallets for loading on to the trucks.

The current packaging department employs 5 workers on day shift and 3 newer workers on the night shift. All the day shift workers are in their early fifties and have been working for Pigs R Us all their lives. John Mellon, the lead line man, exemplifies the group. He is 53 years old. He has a family of three children most all are grown. One works in the business with him as the manager of accounting department having gotten a college degree unlike his father. John rarely travels out of state and has never been abroad. He is not terribly familiar with technology. He has a Smart TV but his children have set it up for him to use Netflix.

When the new employees arrived, the packaging staff tried to get to know them but had little in common and found it hard to communicate with them. The new workers ate together at lunch and always with food they brought with them despite offers of food brought in by the older employees to show their “southern roots”. Things are strained between the groups because the older employees thought they were being snubbed and many are uncertain as to the customs and language unable to communicate their real feelings. This all operated to create a schism among the workers which escalated into job performance and employment commitment issues when the six-month results from the 3D/Robot pilot showed the following success in favor of new technology.

The results showed such a marked process improvement with the added benefit of creating materials that were sustainable. The immediate reaction among the older workers was fear for their jobs. The new workers suddenly were the enemy. Chinn was pleased with the new process and indicated that the 3D printing approach would be continued. The word of the decision spread among the families in the company and the “southern family” culture was now closing ranks on the newcomers both in the packaging room and in the other departments thus confirming their fears when news of the buyout surfaced.

1. Write SWOT analysis

2. Write the current state of the company as supported by the SWOT and its relevance to the scenario.

3. Identifie the OD challenges in the case.

4. Recommend and describe the quantitative approach for diagnosing the situation at Pinyin Foods.

Question 2:

Sunny Ltd., a hand sanitizer manufacturer, has prepared its financial statements for the year ended at December 31, 2019. On February 28, 2020, the board of directors authorized to issue the financial statements to shareholders. The following events have occurred:

1. On December 1, 2019, the board of directors decided to issue $50,000,000, 9% convertible bonds for the purpose of expanding business in other countries. The conversion rate is fixed at 50 shares for bond with face value of $1,000. The convertible bonds are offered to the public on January 15, 2020. The market interest rate for a similar bond without conversion option is at 12%.                                                                                        [3 marks]
2. On October 23, 2019, Sunny signed a contract to sell 10,000 hand sanitizer to a local store at a price of $200 each. However, due to the increase in the cost of materials, the estimated cost of making one hand sanitizer has been increased to $250. Sunny has to deliver the hand sanitizer to its customer on January 30, 2020.                                                      [4 marks]

3. Under the terms of the sales contract, Sunny undertakes to recall its new formulated sanitizer, for its manufacturing defects within six months from the date of sale. The accountants estimated that 5% of the sanitizer will be returned for refund. In January 2020, Sunny discovered a serious problem in the manufacturing process of the new formulated sanitizer. Because of this, Sunny expected that 20% of the sanitizer sold in 2019 will be returned for refund.    [4 marks]

4. On December 15, 2019, a group of customers reported that the hand sanitizer that they bought in 2019 caused them have serious skin infection problems. They filed a lawsuit against Sunny on December 20, 2019. The company’s attorney said that it was probable that Sunny would be liable for the case. However, the amount of damage could not be estimated.        [4 marks]

5. On February 12, 2020, the above lawsuit case was settled for the amount of $2,500,000.                                                                                                     [4 marks]
6. Sunny has retail stores in China doing poorly. On February 15, 2020, Sunny estimated that those stores might report a loss of $1,500,000 in 2020.                                 [4 marks]

7. In May 2019, Sunny had legal disputes with Coco Limited. Unable to reach out-of-court settlement with Coco, Sunny sued Coco for compensation for damages in August 2018.         In November 2019, Sunny heard good news about the lawsuit in which the company sued Coco. Sunny’s lawyer is confident that the company will win the case and will receive about $120,000 in compensation for damages from Coco in early 2020. Sunny recognized the gain and receivable from litigation of $120,000 in year 2019.                                 [4 marks]

8. On March 1, 2020, a customer owing $600,000 to Sunny filed for bankruptcy. The financial statements include an allowance for doubtful debts pertaining to this customer only of $30,000.                                                                                          [3 marks]

Required:

For each of the above event, state the correct accounting treatments in accordance with Hong Kong Accounting Standards for the year ended at December 31, 2019. If it is an event after the reporting period, identify whether it is an adjusting or non-adjusting event. Give reasons for your answer.

Sunny Ltd., a hand sanitizer manufacturer, has prepared its financial statements for the year ended at December 31, 2019. On February 28, 2020, the board of directors authorized to issue the financial statements to shareholders. The following events have occurred:

1. On December 1, 2019, the board of directors decided to issue $50,000,000, 9% convertible bonds for the purpose of expanding business in other countries. The conversion rate is fixed at 50 shares for bond with face value of $1,000. The convertible bonds are offered to the public on January 15, 2020. The market interest rate for a similar bond without conversion option is at 12%.                                                                                       [3 marks]

2. On October 23, 2019, Sunny signed a contract to sell 10,000 hand sanitizer to a local store at a price of $200 each. However, due to the increase in the cost of materials, the estimated cost of making one hand sanitizer has been increased to $250. Sunny has to deliver the hand sanitizer to its customer on January 30, 2020.                                                      [4 marks]

3. Under the terms of the sales contract, Sunny undertakes to recall its new formulated sanitizer, for its manufacturing defects within six months from the date of sale. The accountants estimated that 5% of the sanitizer will be returned for refund. In January 2020, Sunny discovered a serious problem in the manufacturing process of the new formulated sanitizer. Because of this, Sunny expected that 20% of the sanitizer sold in 2019 will be returned for refund.        [4 marks]

4. On December 15, 2019, a group of customers reported that the hand sanitizer that they bought in 2019 caused them have serious skin infection problems. They filed a lawsuit against Sunny on December 20, 2019. The company’s attorney said that it was probable that Sunny would be liable for the case. However, the amount of damage could not be estimated. [4 marks]

5. On February 12, 2020, the above lawsuit case was settled for the amount of $2,500,000.                                                                                                    [4 marks]
6. Sunny has retail stores in China doing poorly. On February 15, 2020, Sunny estimated that those stores might report a loss of $1,500,000 in 2020.                                       [4 marks]

7. In May 2019, Sunny had legal disputes with Coco Limited. Unable to reach out-of-court settlement with Coco, Sunny sued Coco for compensation for damages in August 2018. In November 2019, Sunny heard good news about the lawsuit in which the company sued Coco. Sunny’s lawyer is confident that the company will win the case and will receive about $120,000 in compensation for damages from Coco in early 2020. Sunny recognized the gain and receivable from litigation of $120,000 in year 2019.                                       [4 marks]

8. On March 1, 2020, a customer owing $600,000 to Sunny filed for bankruptcy. The financial statements include an allowance for doubtful debts pertaining to this customer only of $30,000. [3 marks]

Required:

For each of the above event, state the correct accounting treatments in accordance with Hong Kong Accounting Standards for the year ended at December 31, 2019. If it is an event after the reporting period, identify whether it is an adjusting or non-adjusting event. Give reasons for your answer.

The internal audit department of V. Gama College has recently completed a review of
the systems relating to portable equipment. The review focussed on compliance tests
on the controls over the custody of these assets.
The college’s accounts department maintains a centralised asset register. New assets
are recorded on the register as part of the system for the recording and payment of
purchases. The asset register identifies the department responsible for the care and
maintenance of each asset. Disposals are notified to accounts using a form that has
to be signed by the relevant head of department. Departments are required to conduct
an annual physical inspection of their portable assets.
A team of internal auditors led by Mr X Shangase, extracted a sample of entries from
the asset register for each of the college’s departments and physically inspected each
of the assets in the sample. This inspection proved satisfactory, with just one
exception. When the audit team visited the music department it asked to see a number
of items including a clarinet. The music department’s technician became slightly
evasive and stated that the clarinet could not be inspected because it had been signed
out by a member of teaching staff. The audit team asked to see evidence of this and
was concerned to discover that the signature was dated more than two years
previously. The technician said that the signature belonged to a former member of
staff who had left the college six months ago.
The internal audit department submitted a report concerning this incident to the
College Principal, Miss M Shange. Four days later, the Head of the Music Department
Miss P Rangasamy telephoned the internal audit department to report that the clarinet
had been in the department at the time of the audit, but that the technician had not
been aware of its location. The former staff member who had signed the clarinet out
had returned the instrument soon afterwards and had simply forgotten to record the
instrument’s safe return. The Head of the Music Department insisted that a member
of the audit staff inspect the clarinet in order to confirm its presence, which was done.The Head of Internal Audit was not satisfied by the response. He was concerned that
the Head of the Music Department could have been covering up a theft committed by
a former colleague by requesting the return of the clarinet and by fabricating an
explanation that the instrument had been mislaid as at the time of the audit. The
College Principal acknowledged these concerns, but instructed the Head of Internal
Audit to take no further action.

DETAILED ANSWERS.
(a) Discuss the implications for the internal audit department of the events up to and
including the discovery that the clarinet had been signed out by a former member of
staff.

DETAILED ANSWER:
(b) Discuss the implications of the responses by the Head of the Music Department
and the College Principal
(i) for the governance at the college.
(ii) for the actions the Head of Internal Audit will take in response to these.

Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine Company estimated that the machine would have a life of four years and a $25,000 salvage value. Delta Machine Company uses the straight-line method to compute depreciation expense. At the beginning of year 3 (2020) Delta discovered that the machine was quickly becoming obsolete and would have little value at the end of its useful life. Consequently, Delta Machine Company revised the estimated salvage to only $5,000. It did not change the estimated useful life of the machine. Compute the depreciation expense for each of the four years.

On January 1, 2019, JP Chemical Company purchases $10,000 of 6% bonds in American Airline at a price of 95. JP Chemical Company intends to hold the bonds until the maturity date on January 1, 2029. The interest dates are January 1 and July 1. JP Chemical Company amortizes any discount or premium using the straight-line method. The fiscal year end of JP Chemical Company is December 31.

Required:

Prepare the journal entries on:

1. January 1, 2019

2. July 1, 2019

3. December 31, 2019

4. January 1, 2020

Explanations are required.

Indicate how each of the following transactions is entered into the US balance of payments with double-entry bookkeeping:

• A U.S. firm exports $500 of goods to an Australian retired man who pays with his bank account savings from his Australian Bank

• A U.S. economics major purchases a travel service for $200 to Italy and pays it with money from his U.S. bank account

• The U.S. government gives $100 from a US bank to Cuba to favor greater economic growth

• A U.S. resident purchases a foreign stock for $400 and pays for it by increasing bank balances in the United States

• A foreign investor purchases $300 of U.S. treasury bills and pays by drawing down his bank balances in the United States by the same amount

--> Using this information, calculate the U.S. balance of payments

This question is based on the general equilibrium analysis.

Suppose the world consists of two large countries - the U.S. and Mexico - which trade with one another. Both countries produce and consume two goods: cars (C) and textiles (T). The U.S. has a comparative advantage in the production of cars. Initially, the U.S. has no tariffs, but Mexico has a 10% tariff on its imports. In 1995, NAFTA (a free trade agreement) is implemented, and Mexico removes its tariff. What are the implications of NAFTA for the U.S.? First explain what happens to production and consumption of cars and textiles in the U.S. Support your answer with a PPF graph that shows the U.S. equilibrium both before and after the implementation of NAFTA (plot C on the x-axis). Second, could the U.S. economy be hurt by NAFTA? Explain.