Consultants notify management of Discount Pharmaceuticals that a stroke medication poses a potential health hazard. Counsel indicates a product recall is probable and is estimated to cost the company $13.00 million.
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- In 2022, management at Pink Paper Company increased the estimated useful lives of its equipment by 50%. In 2024, it was determined that the service lives had been overestimated in order to decrease depreciation expense and boost net income over the budgeted targets. The increase in net income allowed top executives to earn maximum bonuses in 2022 and 2023. What is the proper accounting treatment in this situation? Answer a. The information should be disclosed in the notes to the 2024 financial statements, but no restatement or adjustment is required. b. No adjustment or disclosure is required for the 2024 financial statements. c. A change in estimated useful lives is a change in estimate that should be accounted for prospectively. No disclosure is required. d. Prior period adjustment and restatement of the 2022 and 2023 financial statements is required. Disclosure in the notes to the 2024 financial statements is required.In 2017, Cole & Sons, a small environmental-testing firm, performed 11,200 radon tests for $290 each and 15,800 lead tests for $240 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 12% next year. However, awareness of radon-related health hazards is expected to result in a 4% increase in radon-test volume each year in the near future. Jim Cole feels that if he lowers his price for lead testing to $230 per test, he will have to face only an 7% decline in lead-test sales in 2018. Requirements 1. Prepare a 2018 sales budget for Cole & Sons assuming that Cole holds prices at 2017 levels. 2. Prepare a 2018 sales budget for Cole & Sons assuming that Cole lowers the price of a lead test to $230. Should Cole lower the price of a lead test in 2018 if the company's goal is to maximize sales revenue?An IE works in the automation department of a surgical equipment manufacturing company that produces specially ordered equipment for hospitals. To upgrade the quality of the assembly process of the camera used in laparoscopic surgery probes, two approaches are available: make and buy. The make alternative has an initial equipment cost of $175,000, a life of 5 years, a $25,000 salvage value, a processing cost of $3,000 per camera, and an M&O cost of $65,000. The buy alternative requires contracting the assembly operation externally at a cost of $6,000 per camera. If the MARR is 12% per year, how many cameras per year must be assembled to justify the make alternative? cameras must be assembled per year to justify the make alternative.
- Quandary Corporation has a major customer who is alleging a significant product defect. Quandary engineers and attorneys have analyzed the claim and have concluded that there is a 51% chance that the customer would be successful in court and that a successful claim would result in a range of damages from $10 million to $20 million, with each part of the range equally likely to occur. The damages would need to be paid soon enough that time-value-of-money considerations are not material. Would a liability be accrued under U.S. GAAP? Under IFRS? If a liability were accrued, what amount would be accrued under U.S. GAAP? Under IFRS?Sunny Groves is a citrus grower in a southern state that has several citrus orchards. Weather forecasters are predicting a significant drop in temperatures over the next two days. The forecast calls for a 25% chance of near-freezing temperatures and a 10% chance of a deep freeze. The management of Sunny Groves is concerned that the impending bad weather may damage their crop of citrus fruit. If the weather is fine, the company stands to make $1,000,000 revenue for their harvest. There are three options that the company can take in light of the coming weather: (1) Do nothing and hope for the best. If the orchards experience near-freezing temperatures, the company will lose half of its crop (and half of the revenue). A deep freeze would destroy all of the fruit (and lead to no revenue). Obviously, taking no precautions costs nothing. (2) Take moderate precautions. This involves having many workers placing heaters and warming tents about the orchards. This would cost $50,000 and reduce…Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,450,000 and leased it to Mid-South Urologists Group, Incorporated, on January 1, 2024. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) Lease Description: Quarterly lease payments Lease term No residual value; no purchase option $159,882-beginning of each period 5 years (20 quarters) 5 years Implicit interest rate and lessee's incremental borrowing rate 12% $ 2,450,000 Economic life of lithotripter Fair value of asset Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2024. Adjusting entries are recorded at the end of…
- SKE Corporation manufactures large kitchen appliances. The following represents financial information for two years: Mr. Cheung is also reviewing the quality of various production process. Recently several competitors have introduced similar prototype chips with much higher quality and causing SKE's sales to decline. Mr. Cheung has embarked an intensive campaign to strengthen its quality control at the beginning of 2023. The costs relating to quality control were complied for 2021 and the full year of 2022. The related costs are shown below 2021 2022 Process Inspection 60,000 52,800 Scrap 60,200 57,600 Quality Training 440,000 610,000 Warranty repairs 150,000 140,000 Testing equipment 230,000 230,000 Resolving customer complaints 108,400 89,000 Rework 390,000 544,000 Preventive maintenance 304,000 440,000 Material Inspection 150,000 210,000 Field Testing 400,000 300,000 Total costs $2,292,600 $2,673,400 Required: a. Prepare a cost of quality (COQ) report for 2021 and 2022, calculate…Consultants notify management of Discount Pharmaceuticals that a stroke medication poses a potential health hazard. Counsel indicates a product recall is probable and is estimated to cost the company $10.00 million. Required: How will this affect the company's income statement and balance sheet this period? Note: Enter your answers in dollars, not in millions (i.e., $5.5 million should be entered as $5,500,000). Amounts to be deducted should be indicated by a minus sign. Assets Balance Sheet Stockholders' Equity Liabilities Revenues Common Stock Retained Earnings Income Statement Expenses Net IncomeAlva Community Hospital has five laboratory technicians who are responsible for doing a seriesof standard blood tests. Each technician is paid a salary of $30,000. The lab facility representsa recent addition to the hospital and cost $300,000. It is expected to last 20 years. Equipmentused for the testing cost $10,000 and has a life expectancy of 5 years. In addition to the salaries,facility, and equipment, Alva expects to spend $200,000 for chemicals, forms, power, and othersupplies. This $200,000 is enough for 200,000 blood tests.Required:Assuming that the driver (measure of output) for each type of cost is the number of blood testsrun, classify the costs by completing the following table. Put an X in the appropriate box forvariable cost, discretionary fixed cost, or committed fixed cost.
- An IE works in the automation department of a surgical equipment manufacturing company that produces specially ordered equipment for hospitals. To upgrade the quality of the assembly process of the camera used in laparoscopic surgery probes, two approaches are available: make and buy. The make alternative has an initial equipment cost of $175,000, a life of 5 years, a $25,000 salvage value, a processing cost of $3,000 per camera, and an M&O cost of $95,000. The buy alternative requires contracting the assembly operation externally at a cost of $7,500 per camera. If the MARR is 12% per year, how many cameras per year must be assembled to justify the make alternative? cameras must be assembled per year to justify the make alternative.The Heinrich Tire Company recalled a tire in its subcompact line in December 2024. Costs associated with the recall were originally thought to approximate $55 million. Now, though, while management feels it is probable the company will incur substantial costs, all discussions indicate that $55 million is an excessive amount. Based on prior recalls in the industry, management has provided the following probability distribution for the potential loss: Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Loss Amount Probability $ 45 million 20% $35 million 50% $ 25 million 30% An arrangement with a consortium of distributors requires that all recall costs be settled at the end of 2025. The risk-free rate of interest is 8%. Required: 1. & 2. By the traditional approach to measuring loss contingencies, what amount would Heinrich record at the end of 2024 for the loss and contingent liability? For the remainder of this…Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,090,000 and leased it to Mid-South Urologists Group, Incorporated, on January 1, 2024. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Lease Description: Quarterly lease payments Lease term No residual value; no purchase option Economic life of lithotripter Implicit interest rate and lessee's incremental borrowing rate Fair value of asset Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2024. Adjusting entries are recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the…