The following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2021 and 2020:

On October 15, 2021, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by GAAP. The division was sold on December 31, 2021, for $5,270,000. Book value of the division’s assets was $4,580,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows:

Assume an income tax rate of 25%.

Required: (In each case, net any gain or loss on sale of division with annual income or loss from the division and show the tax effect on a separate line.)
1. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.
2. Assume that by December 31, 2021, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $5,270,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.
3. Assume that by December 31, 2021, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $3,990,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures.

Assume that by December 31, 2021, the division had not yet been sold but was considered held for sale. The fair value of the division’s assets on December 31 was $3,990,000. Prepare revised income statements according to generally accepted accounting principles, beginning with income from continuing operations before income taxes. Ignore EPS disclosures. (Amounts to be deducted should be indicated with a minus sign.)

On January 1, 2014, Allan Company bought a 15 percent interest in Sysinger Company. The acquisition price of $184,500 reflected an assessment that all of Sysinger’s accounts were fairly valued within the company’s accounting records. During 2014, Sysinger reported net income of $100,000 and declared cash dividends of $30,000. Allan possessed the ability to influence significantly Sysinger’s operations and, therefore, accounted for this investment using the equity method. On January 1, 2015, Allan acquired an additional 80 percent interest in Sysinger and provided the following fair-value assessments of Sysinger’s ownership components: Consideration transferred by Allan for 80% interest . . . . . . . . . . . . . $1,400,000 Fair value of Allan’s 15% previous ownership . . . . . . . . . . . . . . . . . . 262,500 Noncontrolling interest’s 5% fair value . . . . . . . . . . . . . . . . . . . . . . . 87,500 Total acquisition-date fair value for Sysinger Company . . . . . . . . . . . $1,750,000 Also, as of January 1, 2015, Allan assessed a $400,000 value to an unrecorded customer contract recently negotiated by Sysinger. The customer contract is anticipated to have a remaining life of 4 years. Sysinger’s other assets and liabilities were judged to have fair values equal to their book values. Allan elects to continue applying the equity method to this investment for internal reporting purposes. At December 31, 2015, the following financial information is available for consolidation: Allan Company Sysinger Company Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (931,000) $ (380,000) Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615,000 230,000 Equity earnings of Sysinger . . . . . . . . . . . . . . . . . . . . . . . . . (47,500) –0– Gain on revaluation of Investment in Sysinger to fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (67,500 ) –0– Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 431,000 $ 150,000 LO 4-9 (continued ) hoy62228_ch04_149-202.indd 198 11/5/13 3:42 PM Final PDF to printer Consolidated Financial Statements and Outside Ownership 199 Allan Company Sysinger Company Retained earnings, January 1 . . . . . . . . . . . . . . . . . . . . . . . . $ (965,000) $ (600,000) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (431,000) (150,000) Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 40,000 Retained earnings, December 31 . . . . . . . . . . . . . . . . . . . . . $(1,256,000 ) $ (710,000 ) Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 288,000 $ 540,000 Investment in Sysinger (equity method) . . . . . . . . . . . . . . . . 1,672,000 –0– Property, plant, and equipment . . . . . . . . . . . . . . . . . . . . . . 826,000 590,000 Patented technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850,000 370,000 Customer contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . –0– –0– Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,636,000 $ 1,500,000 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,300,000) $ (90,000) Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (900,000) (500,000) Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . (180,000) (200,000) Retained earnings, December 31 . . . . . . . . . . . . . . . . . . . . . (1,256,000 ) (710,000 ) Total liabilities and equities . . . . . . . . . . . . . . . . . . . . . . . $(3,636,000 ) $(1,500,000 ) a. How should Allan allocate Sysinger’s total acquisition-date fair value (January 1, 2015) to the assets acquired and liabilities assumed for consolidation purposes? b. Show how the following amounts on Allan’s preconsolidation 2015 statements were derived: • Equity in earnings of Sysinger. • Gain on revaluation of Investment in Sysinger to fair value. • Investment in Sysinger. c. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2015. At year-end, there were no intra-entity receivables or payables.

Read the assigned article and  answer the question at the end of the article:

Whistleblower wins $51 million in kickback and bribery case.

A whistleblower will collect a $51 million payday after sounding the alarm about bribes and kickbacks at the medical device company where he worked.

Olympus Corporation of the Americas agreed Tuesday to pay $646 million in fines after it admitting to a pattern of bribery and kickbacks. About half of that fine was a criminal penalty for violating the federal anti-kickback statue, making it the largest amount ever paid for breaking that law. The payment to the whistleblower will be paid out of the company's fines.

John Slowik, 53, worked for 20 years for Olympus, which is the medical device unit of the Japanese company that also makes cameras. In 2009 he was named the company's compliance officer. But he said that his complaints about the company's policy of disguising payments as grants and lavishing expensive trips and entertainment on doctors and hospital administrators in order to sell equipment fell on deaf ears within the company.

Slowik was fired in 2010, and has not worked since, according to his lawyer, Kathryn Schilling. But he filed a sealed federal lawsuit, using the federal whistleblower act, on behalf of the federal government, which was being cheated by the company's illegal acts.

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The kickbacks and bribes "can improperly influence a provider's judgment about a patient's health care needs, result in the use of inferior or overpriced equipment, and drive up health care costs for everybody," said Deputy Attorney General Benjamin Mizer.

Slowik's suit said that when he was named compliance officer, it was a new position at the company and he had no resources or training to perform the job. He said that Mark Gumz, who was Olympus CEO at the time, told him the job as compliance officer was "to try to figure out how to 'work around the rules' so as to 'not impact the business.'" He said when he tried to come up with a compliance program to stop the bribes and kickbacks Gumz "began to ostracize and harass" him.

"He's extremely honest and intelligent," Schilling said about her client. "He was just very intent on doing the right thing."

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Slowik declined to be interviewed about the case. He issued a statement thanking his attorneys as well as the Justice Department lawyers and other government investigators who worked on the case.

"I would also like to thank my family and friends who have stood by me and supported my efforts to do the right thing under difficult circumstances," he said.

In a statement, Olympus said that its previous conduct did not adversely affect patient health or patient care. It said that while it acknowledges responsibility for that conduct it "does not represent the values or Olympus or its employees" and that it is committed to complying with the law going forward.

QUESTIONS:

1. Should whistleblowing be encouraged by businesses? Why or why not?

2. Do you think the amount the whistleblower received for reporting the bribes and kickbacks is appropriate? Why or why not?

Imagine you are the head accountant for GE Corp located in Wisconsin. In November 2017, that state had the second highest unemployment rate in the Midwest: 4.9% (down from 6.1% in January 2015). For the past few years, you have noticed that the company’s bad debt rate has been about 7% of year-end accounts receivable. That rate of bad debts has severely affected the company’s profitability…especially since management has steadily been lowering the standards for granting credit to customers.

Your salary structure (as well as that of other corporate managers) allows for a bonus when net income is equal to or greater than a specific percentage of net sales. Unfortunately, that profit metric has not been reached in four years. However, the CEO and CFO (who is retiring after the first quarter of 2018) realized that a change in the bad debts percentage would allow them and you to obtain bonuses in 2017. If bad debts were computed at 2% of year-end A/R rather than 7%, everyone would receive a reasonable (but not extreme) bonus for 2017. The CEO justifies the use of that rate by concluding that, since unemployment in Illinois has been decreasing over the past few years, so will bad debts.

a.   Is a change in a bad debts estimate permissible under generally accepted accounting principles? If yes, explain how such a change is effected. If no, explain why such a change would not be allowed

b.   Would making such a change in the bad debts estimate violate any basic accounting concepts? Explain your yes or no answer

c.   Provide at least two alternatives to help improve the company’s profit performance.

d.   You have a new baby at home as of September 2017. The bonus would help with the added expenses. Additionally, you are up for promotion to CFO next year upon the retirement of the current CFO; allowing the current CEO and CFO to receive their bonuses would certainly bring positive recommendations for that new position.

      1.   Is reducing the bad debts estimate illegal? Explain.

      2.   Is reducing the bad debts estimate unethical, given the CEO’s justification? Explain.

e.   Assume that the CEO and CFO are very adamant that the bad debts percentage be reduced in 2017 to 2% of year-end receivables. The 5% difference is not material to the financial statements. You believe that you will be terminated if you don’t make this adjustment. What should you consider in making your decision?

Patagonia

Patagonia sells rugged clothing and gear to mountain climbers, skiers, and other extreme-sport enthusiasts. The company is also well known for its environmental stands and its commitment to product quality. Patagonia has never owned a fabric mill or a sewing shop. Instead, to make a ski jacket, for example, it buys fabric from a mill, and zippers and facings from other manufacturers, and then hires a sewing shop to complete the garment. To meet its own environmental standards and ensure product quality, it works closely with each partner to make sure the jacket meets its rigid standards.

As a result of these standards, Patagonia does as much business as it can with as few partners as possible and chooses its relationships carefully. The first thing the company looks for in a partner is the quality of its work. It doesn’t look for the lowest-cost provider, who might sew one day for a warehouse store such as Costco and try to sew the next day for Patagonia. Contractors that sew on the lowest-cost basis, the company reasons, wouldn’t hire sewing operators of the skill required or welcome Patagonia’s oversight of its working conditions and environmental standards. What Patagonia looks for, more than anything, is a good fit between itself and the companies it partners with. It sees its partners as an extension of its own business, and wants partners that convey Patagonia’s own sense of product quality, business ethics, and environmental and social concern.

Once a relationship is established, Patagonia doesn’t leave adherence to its principles to chance. Its production department monitors its partners on a consistent basis. The objective is for both sides to prosper and win. In fact, in describing the company’s relationship with its partners, Patagonia founder Yvon Chouinard says, “We become like friends, family—mutually selfish business partners; what’s good for them is good for us.”

Build-A-Bear Workshop

A similar set of beliefs and actions describe Build-A-Bear Workshop. Build-A-Bear lets its customers, who are usually children, design and build their own stuffed animals, in a sort of Santa’s workshop setting. Like Patagonia, Build-A-Bear is a very socially conscious organization, and looks for partners that reflect its values. Affirming this point, Maxine Clark, the company’s founder, said, “The most successful corporate partnerships are forged between like-minded companies with similar cultures that have come together for a common goal, where both sides benefit from the relationship.”

Also similar to Patagonia, Build-A-Bear thinks of its partners as good friends. Reflecting on her experiences in this area, Clark said, “I tend to think of partners as good business friends—companies and people who would do everything they could to help us succeed and for whom I would do the same.” In a book she wrote about founding and building Build-A-Bear into a successful company, Clark attributes having good partners to careful selection. She also likens business partnership to a marriage, which has many benefits but also takes hard work: “Good business partnerships are like successful marriages. To work, they require compatibility, trust and cooperation. Both parties need to be invested in one another’s well-being and strive for a common goal.”

Both Patagonia and Build-A-Bear make extensive use of partnerships and are leaders in their respective industries.

Questions for Critical Thinking

1. 1. To what extent do you believe that Patagonia and Build-A-BearWorkshop’s ethical cultures drive their views on partnering?

2. 2. Assume you were assigned the task of writing a code of conduct for Patagonia. Write the portion of the code of conduct that deals with business partnership relationships.

3. 3. What similarities do you see between the partnership philosophies of Patagonia and Build-A-Bear Workshop?

4. 4. Spend some time studying Patagonia by looking at the company’s website and its Facebook page, and via other Internet searches. Describe Patagonia’s general approach to business ethics, social responsibility, and environmental concerns. What, if anything, can start-ups learn from Patagonia’s philosophies and its experiences?

Brown Inc. acquired a delivery van on October 1, 2017 at a cost of $45,000. The useful life of the van was 12 years with a residual value of $3,000. Assume that the company used straight-line method with fractional years rounded to the nearest whole month. The delivery van was traded-in with a new one as of end of the year of 2018 (December 31, 2018). The list price of the new delivery van was $56,000. The Brown Inc. accepted a trade-in allowance of $40,850 and paid the remaining amount in cash to get the new van. In recording the trade-in, which of the following is correct?(3 Points)

Accumulated depreciation of the old van is debited by $3,375

Accumulated depreciation of the old van is debited by $4,375

Accumulated depreciation of the old van is credited by $4,375

Accumulated depreciation of the old van is credited by $3,375

(ii) Broadoak acquired a 12-year lease en a property on 1 October 2016 at a cost of S240,000. The company policy is to revalue its properties to their market values at the end of each year. Accumulated amortization is eliminated and the property is restated to the revalued amount. Annual amortization is calculated on the carrying values at the beginning of the year, The market values, of the property on 30 September 2017 and 2018 were $231,000 and $175,000 respectively, The existing balance on the revaluation reserve at 1 October 2016 was S50,000. This related to some non-depreciable land whose value had not changed significantly since 1 October 2016.

Required: Prepare extracts of the Fiancial statements of of Broadoak. (including the movement on the revaluation reserve) for the years to 30 September 2017 and 2018 in respect of the leasehold property

(ii) Broadoak acquired a 12-year lease en a property on 1 October 2016 at a cost of S240,000. The company policy is to revalue its properties to their market values at the end of each year. Accumulated amortization is eliminated and the property is restated to the revalued amount. Annual amortization is calculated on the carrying values at the beginning of the year, The market values, of the property on 30 September 2017 and 2018 were $231,000 and $175,000 respectively, The existing balance on the revaluation reserve at 1 October 2016 was S50,000. This related to some non-depreciable land whose value had not changed significantly since 1 October 2016.

Required: Prepare extracts of the Fiancial statements of of Broadoak. (including the movement on the revaluation reserve) for the years to 30 September 2017 and 2018 in respect of the leasehold property

The following information is used for the following two questions. Ping and Slazenger Company (its 90% owned affiliate) reported the following income information for year X1:

During Year X1, Slazenger made sales of $20,000 to Ping. Slazenger’s Cost of Sales was $10,000. As of 12/31/X1, Ping had still owned 60% of the units acquired from Slazenger. Based on this information, how much Consolidated Income should Ping report?

Please select the correct answer below only one:

a. $140,000

b. $144,000

c. $146,000

d. $150,000

e. None of the Above