EXERCISE 4‐2 Workpaper Eliminating Entries, Cost Method LO 5 Park Company purchased 90% of the stock of Salt Company on January 1, 2019, for $465,000, an amount equal to $15,000 in excess of the book value of equity acquired. This excess payment relates to an undervaluation of Salt Company's land. On the date of purchase, Salt Company's retained earnings balance was $50,000. The remainder of the stockholders' equity consists of no‐par common stock. During 2023, Salt Company declared dividends in the amount of $10,000, and reported net income of $40,000. The retained earnings balance of Salt Company on December 31, 2022, was $160,000. Park Company uses the cost method to record its investment. Required: Prepare in general journal form the workpaper entries that would be made in the preparation of a consolidated statements workpaper on December 31, 2023.

Question 4

The Government Schools Board is inviting tenders for a contract to provide IT services to schools. A panel of senior managers from the Schools Board will assess the tenders and recommend a preferred tenderer to the Head of the Education Department.

Part a)

Suppose there are two tenders received with the following data:

Tender 1 (Whatis) Tender 2 (Hacker)

Costs Year 1 $250,000 $350,000

Costs year 2 $250,000 $250,000

Costs year 3 $250,000 $150,000

Government departments use a cost of capital of 7%

Required

1) What methods could be used to assess the tenders? Which method would you recommend?

2) Which tender would you accept? Why? (Remember, this is a contract for the total amount the schools board needs to pay to the successful company)

4+6 = 10 marks

Part b)

The Hacker Company submits tender 2 to the Schools Board. In order to gain the special knowledge needed to run this contract, Hacker’s CEO offers a job to one of the managers from the Schools Board. The job will commence if Hacker wins the tender. If Hacker does not win the tender the job offer will not go ahead. The salary to be paid for this job is around double what the manager is currently earning. The manager does not tell the other panel managers from the Schools Board about his job offer.

Required: Discuss the ethical issues for Hacker and for the School’s Board manager who will get a new highly paid job if Hacker wins the tender.

Other data:

1.  Accrued but unrecorded and uncollected consulting fees earned at December 31 amount to: $27500.

2. The company determined that $16500 of previously unearned consulting fees had been earned at December 31.

3.  Office supplies on hand at December 31 total $330

4.  The company purchased all of its equipment when it first began business. At that time, the estimated useful life of the equipment was six years.

5. The company prepaid its nine-month rent agreement on June 1, 2020.

6. The company prepaid its six-month insurance policy on December 1, 2020

7.  Accrued but unpaid salaries total $13200 at December 31,2020.

8. On September 1, 2020, the company borrowed $66000 by signing an eight-month, 4 percent note payable. The entire amount, plus interest, is due March 31, 2021.

Account                                                                                 Debit                             Credit

Cash                                                                                       304,150

Accounts Receivable                                                             99,000

Office supplies                                                                            880

Prepaid rent.                                                                            3,960

Unexpired insurance                                                              1,650

Office equipment                                                                  79,200

Accumulated depreciation: office equipment                                                          26,400

Accounts payable                                                                                                              4,400

Notes payable (due 3/1/12)                                                                                          66,000

Interest payable                                                                                                                    660

Income taxes payable                                                                                                       9,900

Dividends payable                                                                                                             3,500

Unearned consulting fees                                                                                              24,200

Capital stock                                                                                                                   220,000

Retained earnings                                                                                                           44,000

Dividends                                                                              3,500

Consulting fees earned                                                                                               550,000

Rent expense                                                                        16,170

Insurance expense                                                                 2,420

Office supplies expense                                                        4,950

Depreciation expense: office equipment                        12,100

Salaries expense                                                                363,000

Utilities expense                                                                    5,280

Interest expense                                                                    3,300

Income taxes expense                                                        49,500

Totals                                                                                   949,060                      949,060

1. Prepare the necessary year-end closing entries.

For the scenarios discussed below, use supply and demand curves and a graph to analyze what will happen to both price and quantity in equilibrium given the information available below

1.You are the CEO of Coca-cola. The FDA introduces a $2 per meal tax on fast-food (but not on drinks). Analyze the market for your products. It is the fast food sellers who are obliged to pay the tax to the state.

2. You are the CEO of Coca-cola. The price of sugar increases. Analyze the results in both the regular Coke and Diet-Coke markets.

In previous years, Easycash Ltd presented its cashflow statement using the ‘indirect method’ however in the current year the CEO has requested that the ‘direct method’ be used.

Prepare a response to the CEO discussing whether this is a change in an accounting policy referring to the relevant Australian accounting standards. Outline the disclosures that would be required with a change in an accounting policy and discuss the differences between the two methods, and if one method is considered more useful than the other method.

Your response should be referenced where appropriate (APA style).

An excerpt from the statement of financial position of Twilight Limited follows:

Notes and Assumptions
December 31, 2020

The Chief Executive Officer (CEO) is a top corporate manager whose primary job is to lead the day-to-day running of the corporation and whose primary goal is to maximize shareholder value. To incentivize CEOs, many large corporations have been compensating CEOs with various forms of pay-for-performance in addition to a fixed annual salary. According to some estimates, over the last two decades CEO compensation in the United States has on average increased by 600%, with a disproportionate increase in equity-based compensation (e.g. stock options). These increases in executive compensation, particularly stock options, have generated enormous controversy. The recent high-profile corporate scandals and financial market tsunami have led some observers to argue that the excessive focus on shareholder value maximization in general, and inadequately designed executive compensation in particular, have led to managerial gross misbehavior as well as short-termism. Some argue that rapid increases in executive compensation represent unmerited transfers of shareholder wealth to top executives with limited if any incentive effects, and at times have led to outright frauds. The problem is exacerbated when the CEO is also the chairman of the board of directors. The adverse effects of excessive CEO compensation are particularly severe in countries where institutional checks such as shareholder protection and shareholder activism are weak.

Required：

Identify any potential conflicts of interest and suggest possible solutions.

The Chief Executive Officer (CEO) is a top corporate manager whose primary job is to lead the day-to-day running of the corporation and whose primary goal is to maximize shareholder value. To incentivize CEOs, many large corporations have been compensating CEOs with various forms of pay-for-performance in addition to a fixed annual salary. According to some estimates, over the last two decades CEO compensation in the United States has on average increased by 600%, with a disproportionate increase in equity-based compensation (e.g. stock options). These increases in executive compensation, particularly stock options, have generated enormous controversy. The recent high-profile corporate scandals and financial market tsunami have led some observers to argue that the excessive focus on shareholder value maximization in general, and inadequately designed executive compensation in particular, have led to managerial gross misbehavior as well as short-termism. Some argue that rapid increases in executive compensation represent unmerited transfers of shareholder wealth to top executives with limited if any incentive effects, and at times have led to outright frauds. The problem is exacerbated when the CEO is also the chairman of the board of directors. The adverse effects of excessive CEO compensation are particularly severe in countries where institutional checks such as shareholder protection and shareholder activism are weak.

Required：

1. Discuss what the relative strengths and weakness of the corporate governance system are.

Falcon ltd whose year end is 31 December acquired four identical units of equipment at a cost of Sh. 600,000 each on 1 April, 2012. The useful life for each piece of the equipment is four years after which it is expected to have a salvage value of sh. 100,000. A similar piece of equipment was acquired on 1 June 2013 at a cost of sh. 700,000. The useful life was estimated at four years and the salvage value sh. 150,000. One unit acquired on 1 April, 2012 was sold for sh. 200,000 on 1 August 2014. On 1 October, 2014 another piece of equipment was acquired 800,000. The estimated useful life was four years and salvage value sh. 200,000. On 1 September, 2015 one unit acquired on 1 April, 2012 was sold at sh. 250,000. The company’s policy is to provide for full years depreciation in the year of purchase and no depreciation in the year of disposal.

Required:
Show the Equipment and Accumulated Depreciation – Equipment accounts for the years 2012 to 2015.

1.Using Carrol’s pyramid of CSR and information from the case study, identify the corporate social responsibilities of Philip Morris International in the context of its operations in North Carolina. In your view, discuss why these responsibilities are important to Philip Morris International?

The US children working in tobacco fields: 'I wanted to help my mama'

Luis is just 14 years old, but he already has an exhausting, dawn-till-dusk job. Last summer, he started working in tobacco fields in North Carolina.

Even though Luis is just a child – too young to buy cigarettes – it is legal for him to work here in the US.

The job pays about $7.25 per hour.

Monday through Saturday last summer, when he was not in school, he rose at 5am, dressed in long sleeves, jeans, boots, gloves, a hat and a plastic poncho, and waited for a van to drive him to fields as far as an hour away. He came home around 7pm. This is a typical schedule for laborers in this tough and dangerous job.

Workers in tobacco are vulnerable to heat sickness, in temperatures which regularly reach 32C (89F); they risk injuries from sharp objects; and, if the Trump administration has its way, children will return to using the most toxic agrochemicals.

Then there is the plant itself. Tobacco naturally contains water-soluble nicotine. This makes morning dew or overnight rain a vehicle for huge doses of nicotine. Workers are regularly exposed to six cigarettes’ worth of nicotine per day, one study found. This can result in acute nicotine poisoning, called green tobacco sickness, characterized by nausea, vomiting, headaches and dizziness.

“I wanted to help my mama,” said Luis. He wanted to work, he said, “to get school supplies, so she doesn’t have to waste money”. Luis is the son of a cervical cancer survivor. He started to work when his mother, a waitress, was too ill to hold a job. (The Guardian has changed the names of workers and their families in this report.)

“It’s heavy work, very hard,” said Luis’s mother. But, she said, “there’s no choice”. Children need to help buy “clothes, shoes, their own things, things they need”. She said it would be “better when they were older, but he started because I had cancer ... He was helping me as well as my older son.”

In the US, lax laws and an informal economy in which landowners are removed from hiring laborers allow teens to work growing and harvesting tobacco. This contravenes some tobacco companies’ own policies, which often prohibit children from performing hazardous work.

“There’s a lot of 14-, 15-year-olds working in the fields,” said Antonio, a 19-year-old who has done so since he was 15, a history confirmed by his mother. “They need money or they want to work,” Antonio said.

Altria, parent company of Philip Morris USA, which produces Marlboro cigarettes, said growers were “prohibited from hiring those less than 16 years of age, and may only assign hazardous duties to workers 18 and older. Both are above the legal requirements. We require parental consent for those under 18 working in tobacco farming.”

The company also said it reviewed all growers every three years. In 2017, it found only one case of child labor, in which a farmer hired two 15-year-olds.

“While the individuals were no longer employed by the grower, the contract requirements were reviewed with the grower to strengthen their understanding of the minimum age requirement,” the company said. The company also said it had hired third-party assessors to monitor labor conditions.

Miguel Coleta, director of sustainability for Philip Morris International, said the company had been “making progress in tackling complex labor issues on farms supplying to PMI and our standards exceed US in many areas”.

“Challenges remain, and PMI continues to work with Verité and the Farm Labor Practices Group on systemic issues associated with child labor, grievance mechanisms to protect workers’ rights and to achieve meaningful improvements on the ground,” said Coleta.

In 2015, PMI adopted a new leaf-buying model in the US, and it now buys through the third-party leaf buyers Alliance One International Inc and Universal Leaf North America. At the time, Human Rights Watch said the move would improve labor conditions on US farms.

The Guardian interviewed several teens, parents, and labor organizers for this story. They described a picture in which child labor was commonplace. However, many said they depended on their children’s income to make ends meet. Many of those interviewed also work in other crops, including picking cucumbers, peppers or other vegetables.

“It’s the fact that we have to do it, because there is no alternative,” said Laticia Savala, a labor organizer with the Farm Labor Organizing Committee (Floc) in North Carolina. Floc does not support outlawing child labor in fields, because organizers feel it would harm families who depend on children’s income. However, needing the money does not lessen the harm.

“What mom wouldn’t want their kids studying [rather] than working in the fields?” asked Savala. “You’re forced into doing something.” If labor conditions on farms “were better, probably child labor wouldn’t exist”.

The world’s largest tobacco-producing countries span the globe. They include Brazil, China, India, Indonesia, Malawi, Pakistan and the United States.

Together, North Carolina and Kentucky produce 70% of the 700m pounds of tobacco grown in the US each year. Only 0.04% of US farmland grows tobacco, but the United States is still an international juggernaut, the fourth-largest producer in the world.

North Carolina is just one part of a global supply chain that feeds cigarette makers with tobacco leaf. However, the value of tobacco farming is dwarfed by the value of the global tobacco products. Tobacco farming was worth $19.1bn in 2013. Once leaf is manufactured, marketed and branded, tobacco products were worth $783bn the same year.

North Carolina’s farmers employ mostly Latin American workers, who toil in fields owned by white, ageing farmers. The US does not grant agricultural workers collective bargaining rights and workers are sometimes undocumented. Workers are vulnerable to wage theft, exploitation and dangerous working conditions.

Because children work in an informal economy, there is no data on how many might work in fields in summer months, or even when they should be in school. A 2014 report by Human Rights Watch (HRW) was the first in recent memory to ignite debate about child labor in tobacco in the US. The advocacy group followed up the report in 2015, and found little had fundamentally changed in fields.

“If you appear younger than 16, they’ll ask,” said 19-year-old John about children working on the fields. “But otherwise, no,” they don’t ask. Many contractors, one mother said, encouraged children to lie about their age.

Attempts have been made to regulate tobacco growing in the past. In 2012, the Obama administration attempted to make it illegal for children younger than 16 to work in tobacco. But the Department of Labor backed down after Republicans falsely argued the measure would prevent children from working on family farms.

At the state level, as recently as 2017, the Democratic Virginia delegate Alfonso Lopez tried to introduce a bill to bar child labor on tobacco farms. He was blocked by Republicans.

“If this was your kid, would you be OK with having them work in this job?” Lopez asked at the time as the bill was shelved. “Would you? I don’t think you would. So why is it OK for kids you don’t know to do this job?”

When criticism of child labor on US farms reached its peak in 2014, Philip Morris International hired a company to audit its supply chain. It found children working in hazardous conditions on 16% of the US farms it visited.

However, auditors concluded: “The root cause of many labor related issues in the US is the lack of sustainable, reliable workforce exacerbated by poor US immigration policies.”

The US has signed an international human rights convention meant to protect children “from economic exploitation” and work likely “to be harmful to the child’s health or physical, mental, spiritual, moral or social development”. To that end, it encourages trading partners to meet these standards, and publishes an annual report on the “worst forms of child labor” around the world.

One country singled out in the report was Malawi, visited by the Guardian earlier this year as part of an investigation, where children “continue to engage in the worst forms of child labor, including in the harvesting of tobacco”, the most recent report by the US Bureau of International Labor Affairs said.

The tobacco industry, through its Eliminating Child Labor in Tobacco Growing Foundation, agrees “in principle” children should be prohibited from hazardous work, “particularly the use of machinery and agrochemicals by children in tobacco farming”.

The Trump administration, meanwhile, is hoping to further deregulate farm labor. Rules put into place after the 2014 HRW report are being rolled back by the US Environmental Protection Agency, which is examining whether children should again be allowed to work with dangerous pesticides on farms.

“I’ve worked in the field as well; it’s very difficult. For a young person it’s worse,” said Antonio’s mother, a 37-year-old with three sons who works behind the counter of a rural convenience store. Teens often prefer farm work to other work, she said, “because they’re given jobs despite their age”.

Dominance of American tobacco has waned in recent decades, as the tobacco supply chain has globalized. This and the deregulation of US tobacco price controls has encouraged consolidation. Where in 1978 there were 188,000 tobacco farms, today there are around 4,200.

“A lot of times they’re underage and they lie and say they’re 16 or 17, but they’re actually 13 or 14 years [old],” Antonio’s mother said. “It’s hard, but there aren’t any more options.” She said claims that child labor was not happening on tobacco farms were “a lie”.

• The names of workers and their families have been changed