QUESTION 5

1. Sales between affiliated companies will be recorded

5 points   

QUESTION 6

1. When affiliated companies sell on credit the trade balances, intercompany receivables and payables

5 points   

QUESTION 7

The equity method of accounting for investments would be applied in which situation:

5 points   

QUESTION 8

U.S. company that has purchased inventory from a German vendor would be exposed to a net exchange gain on the unpaid balance if the

After reading the following case, please answer the following questions:

1. Why does agency problem arise?

2. What is the cost of agency problem?

3. How to minimize the agency problem?

CASE STUDY ON AGENCY PROBLEM ABC

Company started operations in early 1970. The company produces specialized items for manufacturing cars. Most of the raw materials used are imported from Brazil because the cost is low and the labor is very cheap. The CEO for ABC Company, Mr. Rodriguez, makes every attempt to keep the cost at the lowest. From 1970 to 2000 net income has increased at a rate of at least 25% per year. There are around 20,000 shareholders that hold ABC Company shares. Shareholders are very happy with the company’s performance. Mr. Rodriguez always held a meeting with Board of Directors to inform them of any decision involve in the company. As such the BOD is very happy with the company performance and Mr. Rodriguez managing style. Every year, the staff received cash bonus of around 2 to 3 times of their salary and Mr. Rodriguez received many incentives from the company including cars, houses and cash. However, at the end of 2001, the cost of raw material increases because of the attack of SARS virus in Brazil. The sales for the year were also reduced. By September 2001, Mr. Rodriguez held an emergency meeting with all the staffs. It is estimated that the income for the year will be reduced. By January 2002, after the preparation of the financial statements, net income showed a decreased of around 45% from last year. Mr. Rodriguez demanded the treasures and the controller to do something with the figures. During the BOD meeting in April 2002, the company announced a 15%increase in the income and declared a dividend of around 5% higher than last year. The shareholders reacted positively to the announcement and started buying more shares of the company. For the next five years, the company continue to decrease in income but providing a good news to the shareholders and giving shareholders higher profit. In 2008, the BOD requested for the company to change the auditor for the company. After the auditing process, the new auditor revealed that the company is in the state of bankruptcy and there are zero balance cash in the bank account. One month after that the company was forced to closed down. Shareholder were surprised with the announcement and lost all their money. The employees lost their job and many creditors couldn’t claim their money. Shareholders are currently suing Mr. Rodriguez and the company for their losses.

In your textbook, read mini-case A Change at the Top at Proctor & Gamble: An Indication of How Much the CEO Matters?

in order to answer the questions below.

(A-G)

What makes a CEO’s job so complex? Use the mini-case to provide examples that help support your answer.

A. G. Lafley joined Procter & Gamble (P&G) in 1977 as brand assistant for Joy dishwashing liquid. From this beginning, he worked his way through the firm’s laundry division, becoming highly visible due to a number of successes including the launching of liquid Tide. A string of continuing accomplishments throughout the firm resulted in Lafley’s appointment as P&G’s CEO in June 2000, a post he held until retiring in mid-2009. Bob McDonald, who joined P&G in 1980, was Lafley’s handpicked successor. McDonald took the top position at P&G in July 2009, but resigned under pressure in May 2013. Lafley, revered by many, was asked to come out of retirement and return to P&G as president, CEO, and chair of the board of directors. Lafley said that when contacted to return to P&G, he agreed immediately to do so, committing to remain “as long as needed to improve the company’s performance.” However, speculation is that Lafley likely would not remain beyond three years.

What went wrong for McDonald, a long-time P&G employee who seemed to know the firm well and who received Lafley’s support? Not surprisingly, a number of possibilities have been mentioned in response to this question. Some concluded that, under McDonald’s leadership, P&G suffered from “poor execution globally,” an outcome created in part by P&G’s seemingly ineffective responses to aggressive competition in emerging mar- kets. Other apparent problems were a failure to control the firm’s costs and employees’ loss of confidence in McDonald’s leadership. Still others argued that McDonald did not fully understand the effects on U.S. consumers of the recession in place when he took over, and that, during that time period, P&G “was selling BMWs when cash- tight consumers were looking for Kias.” The net result of these types of problems included P&G “losing a step to rivals like Unilever.” In turn, this caused investors to become frustrated by “P&G’s inability to consistently keep up with its rivals’ sales growth and share price gains.”

But why bring Lafley back? In a few words, because of his previous success. Among other achievements during his first stint as P&G’s main strategic leader were building up the firm’s beauty business, acquiring Gillette, expanding the firm’s presence in emerging markets, and launching hit products such as Swiffer and Febreze. An overall measure of P&G’s success during Lafley’s initial tenure as CEO is the fact that the firm’s shares increased 63 percent in value while the S&P fell 37 percent in value. Thus, multiple stakeholders, including investors and employees, may believe that Lafley can return the firm to the “glory days” it experienced from 2000 to 2009.

Product innovations are a core concern and an area receiving a significant amount of attention. Analysts suggest that P&G needs to move beyond incremental innovations, seeking to again create entirely new product categories as it did with Swiffer and Febreze. This will be challenging, at least in the short run, given recent declines in allocations to the firm’s research and development programs. These reductions have resulted in a product pipeline focused mainly on “reformulating rather than inventing.” Additionally, efforts are underway to continue McDonald’s strong, recent commitments to reduce the firm’s “bloated” cost structure and reenergize the competitive actions it will take in global markets.

Restructuring P&G’s multiple brands and products into four sectors, each of which will be headed by a president, is a major change Lafley is initiating. Currently, the firm has two global business divisions—beauty and grooming and household care. Final decisions about the precise compositions of the four sectors were not announced by mid-2013. Speculation, though, was that each sector would be formed “to reflect synergies between various businesses.” For example, one expectation was that paper-based products such as “Bounty paper towels, Charmin toilet paper, Pampers diapers and Always feminine care products” would be combined to form a sector. Moreover, Lafley’s replacement was expected to be selected from among the four presidents who would be chosen to lead the new sectors.

Lala Corporation produces Greek yogurts that pass through three departments – Fermentation Department (Department I), Mixing Department (Department II), and Packaging Department (Department III). The production process in the Mixing Department requires the input of two main types of ingredients. One is the basic ingredients and the other one is the special ingredients. 100% of the basic ingredients are added at the beginning of the process. For the special ingredients, they are added gradually. 30% of these special ingredients are added at the beginning of the process, 50% are added midway through the process and the remainder of the special ingredients are added at the three-quarter way through the process. The following information was available concerning the operation of the Mixing Department for the month of October 2020. Beginning work-in process (WIP) (1 October 2020): 2,500 units were 40% completed with respect to conversion costs (CC). Costs pertaining to the beginning WIP as at 1 October 2020 were: Department I $10,000, Basic Ingredients $30,000, Special Ingredients $15,000 and CC $10,000. Units started in the month were 15,000 units. Costs added to production during the month of October 2020 were: Department I $60,000, Basic Ingredients $188,750, Special Ingredients $203,400, and CC $154,500. Ending WIP as at 31 October 2020 were 3,500 units and 70% completed with respect to CC. Required:

a) Use of the weighted average (WA) process costing method, calculate 1) the units completed in October 2020. 2) the equivalent units for the Special Ingredients. 3) the total costs per equivalent unit. 4) the total costs of completed products transferred to the Packaging Department.

b) Use the first-in-first-out (FIFO) process costing method, calculate 5) the units completed in October 2020. 6) the equivalent units for the Special Ingredients. 7) the total costs per equivalent unit. viii) the total costs of completed products transferred to the Packaging Department.

On 11 August 2020, Vanya Ho entered into a contract with Diego Toh to renovate her school, The Umbrella Learning Centre and to set up the internet system for the school’s online lessons starting in October. They agreed to the total sum of $100,000 with a 10% deposit of $10,000 to be paid on the signing of the contract. $20,0000 was to be paid upon the design being approved by Vanya Ho. The balance of $70,000 was to be paid on the completion of the renovation works. The contract provided that Diego Toh was to complete the renovation works and handover the school to Vanya Ho not later than 20 September 2020.

The design was approved by Vanya Ho on 18 August 2020. Diego Toh proceeded with the renovation which was completed on 19 September 2020. Vanya inspected the renovation work on 20 September 2020. She was not pleased with the internet system when she tested the wifi connection. The wifi signals were weak and created issues for running the online lessons. Diego Toh explained that his electricians have gone back to Malaysia and would only be back early 2021. He insisted that the renovation works including the setting up of the internet system were in accordance with the design as approved by Vanya.

On 21 September, Vanya Ho called an independent electrician, Klaus Soh, to inspect and advise on internet system. Klaus Soh explained that the internet system was poorly set-up. He quoted $2,000 to rectify the defects which could be completed by 25 September 2020.

On 22 September, Diego Toh contacted Vanya Ho and demanded payment of the balance amount of $70,000. Vanya Ho refused to pay the balance and insisted that Diego Toh rectify the internet system by 26 September 2020.

Advise Diego Toh on the following:

Diego Toh would like to claim the full amount of $70,000. Discuss the LEGAL PRINCIPLES concerning the performance of the contract, APPLY the legal principles, and CONCLUDE on whether Diego Toh could discharge the contract with Vanya Ho and claim the full amount of $70,000.

On 11 August 2020, Vanya Ho entered into a contract with Diego Toh to renovate her school, The Umbrella Learning Centre and to set up the internet system for the school’s online lessons starting in October. They agreed to the total sum of $100,000 with a 10% deposit of $10,000 to be paid on the signing of the contract. $20,0000 was to be paid upon the design being approved by Vanya Ho. The balance of $70,000 was to be paid on the completion of the renovation works. The contract provided that Diego Toh was to complete the renovation works and handover the school to Vanya Ho not later than 20 September 2020. The design was approved by Vanya Ho on 18 August 2020. Diego Toh proceeded with the renovation which was completed on 19 September 2020. Vanya inspected the renovation work on 20 September 2020. She was not pleased with the internet system when she tested the wifi connection. The wifi signals were weak and created issues for running the online lessons. Diego Toh explained that his electricians have gone back to Malaysia and would only be back early 2021. He insisted that the renovation works including the setting up of the internet system were in accordance with the design as approved by Vanya. On 21 September, Vanya Ho called an independent electrician, Klaus Soh, to inspect and advise on internet system. Klaus Soh explained that the internet system was poorly set-up. He quoted $2,000 to rectify the defects which could be completed by 25 September 2020. On 22 September, Diego Toh contacted Vanya Ho and demanded payment of the balance amount of $70,000. Vanya Ho refused to pay the balance and insisted that Diego Toh rectify the internet system by 26 September 2020.

(b) Diego Toh would like to claim the full amount of $70,000. Discuss the LEGAL PRINCIPLES concerning the performance of the contract, APPLY the legal principles, and CONCLUDE on whether Diego Toh could discharge the contract with Vanya Ho and claim the full amount of $70,000.

1] On 1 January 2018 Panorama Ltd acquired equipment for $22 000, net of GST. The estimated residual value for the equipment is zero. Depreciation is calculated at 10% p.a) on the diminishing-balance basis. The depreciation expense for the year ended 31 December 2020 is:

2] The correct entry to record the purchase of a motor vehicle for $40 000 cash, plus 10% GST is which of the following?

3] After writing off bad debts of $1800 the allowance for doubtful debts account balance was $600 credit. What is the correct general journal entry to record an adjustment to bring the allowance for doubtful debts to 10% of accounts receivable of $22 000?

The following transactions occurred during 2020. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.

Prepare general journal entries for the transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Concur Technologies, Inc., is a large expense-management company located in Redmond, Washington. The Wall Street Journal asked Concur to examine the data from 8.3 million expense reports to provide insights regarding business travel expenses. Their analysis of the data showed that New York was the most expensive city, with an average daily hotel room rate of $198 and an average amount spent on entertainment, including group meals and tickets for shows, sports, and other events, of $172. In comparison, the U.S. averages for these two categories were $89 for the room rate and $99 for entertainment. The table in the Excel Online file below shows the average daily hotel room rate and the amount spent on entertainment for a random sample of 9 of the 25 most visited U.S. cities (The Wall Street Journal, August 18, 2011). Construct a spreadsheet to answer the following questions.

1. What does the scatter diagram developed in part (a) indicate about the relationship between the two variables?

   The scatter diagram indicates a _________ linear relationship between the hotel room rate and the amount spent on entertainment.

2. Develop the least squares estimated regression equation.

   Entertainment=______+_________ room rate (to 4 decimals)

3. Provide an interpretation for the slope of the estimated regression equation (to 3 decimals).

   The slope of the estimated regression line is approximately . So, for every dollar _________ in the hotel room rate the amount spent on entertainment increases by $.

4. The average room rate in Chicago is $128, considerably higher than the U.S. average. Predict the entertainment expense per day for Chicago (to whole number).

   $