Horizon Corporation manufactues personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry, 2020's income statement reported a loss of $20 million. Just before the end of 2021 fiscal year, a memo from the company's chief financial officer (CFO) to Jim Fielding, the company controller, included the following comments:"If we dont do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write-down. The resulting loss for 2021 will cause a violation of our debt convenants and force the company into bankruptcy. I suggest that you ship half of out inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's presdient, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply return the inventory in 2022 after the financial statements have been issued."Required:Understand the reporting effect: What is the effect on income before taxes of the sales transaction requested by the CFO?Specify the options: If Jim does not record the sales transaction requested by the CFO, what is the effect on total assets and income before taxes of the inventory write-down?Identify the impact: Are investors and creditors potentially harmed by the CFO’s suggestion?Make a decision: Should Jim follow the CFO’s suggestion? EthicsAP6-5 Horizon Corporation manufactures personal computers. The company beganoperations in 2012 and reported profits for the years 2012 through 2019. Due primarily toincreased competition and price slashing in the industry, 2020's income statement reported aloss of $20 million. Just before the end of the 2021 fiscal year, a memo from the company'schief financial officer (CFO) to Jim Fielding, the company controller, included the followingcomments:If we don't do something about the large amount of unsold computers already manufactured,our auditors will require us to record a write-down. The resulting loss for 2021 will cause aviolation of our debt covenants and force the company into bankruptcy. I suggest that youship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company'spresident, and he will accept the inventory and acknowledge the shipment as a purchase. Wecan record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simplyreturn the inventory in 2022 after the financial statements have been issued.Required:1. Understand the reporting effect: What is the effect on income before taxes of the salestransaction requested by the CFO?2. Specify the options: If Jim does not record the sales transaction requested by the CFO,what is the effect on total assets and income before taxes of the inventory write-down?3. Identify the impact: Are investors and creditors potentially harmed by the CFO'ssuggestion?4. Make a decision: Should Jim follow the CFO's suggestion?

Disclaimer: “Since you have posted a question with multiple sub-parts, we will solve first three…

Horizon Corporation manufactues personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry, 2020's income statement reported a loss of $20 million. Just before the end of 2021 fiscal year, a memo from the company's chief financial officer (CFO) to Jim Fielding, the company controller, included the following comments: "If we dont do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write-down. The resulting loss for 2021 will cause a violation of our debt convenants and force the company into bankruptcy. I suggest that you ship half of out inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's presdient, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply return the inventory in 2022 after the financial statements have been issued." Required: Understand the reporting effect: What is the effect on income before taxes of the sales transaction requested by the CFO? Specify the options: If Jim does not record the sales transaction requested by the CFO, what is the effect on total assets and income before taxes of the inventory write-down? Identify the impact: Are investors and creditors potentially harmed by the CFO’s suggestion? Make a decision: Should Jim follow the CFO’s suggestion?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Horizon Corporation manufactues personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry, 2020's income statement reported a loss of $20 million. Just before the end of 2021 fiscal year, a memo from the company's chief financial officer (CFO) to Jim Fielding, the company controller, included the following comments:

"If we dont do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write-down. The resulting loss for 2021 will cause a violation of our debt convenants and force the company into bankruptcy. I suggest that you ship half of out inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's presdient, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply return the inventory in 2022 after the financial statements have been issued."

Required:

Understand the reporting effect: What is the effect on income before taxes of the sales transaction requested by the CFO?
Specify the options: If Jim does not record the sales transaction requested by the CFO, what is the effect on total assets and income before taxes of the inventory write-down?
Identify the impact: Are investors and creditors potentially harmed by the CFO’s suggestion?
Make a decision: Should Jim follow the CFO’s suggestion?

Ethics
AP6-5 Horizon Corporation manufactures personal computers. The company began
operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to
increased competition and price slashing in the industry, 2020's income statement reported a
loss of $20 million. Just before the end of the 2021 fiscal year, a memo from the company's
chief financial officer (CFO) to Jim Fielding, the company controller, included the following
comments:
If we don't do something about the large amount of unsold computers already manufactured,
our auditors will require us to record a write-down. The resulting loss for 2021 will cause a
violation of our debt covenants and force the company into bankruptcy. I suggest that you
ship half of our inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's
president, and he will accept the inventory and acknowledge the shipment as a purchase. We
can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply
return the inventory in 2022 after the financial statements have been issued.
Required:
1. Understand the reporting effect: What is the effect on income before taxes of the sales
transaction requested by the CFO?
2. Specify the options: If Jim does not record the sales transaction requested by the CFO,
what is the effect on total assets and income before taxes of the inventory write-down?
3. Identify the impact: Are investors and creditors potentially harmed by the CFO's
suggestion?
4. Make a decision: Should Jim follow the CFO's suggestion?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.