Malone Industries has been in business for five years and has been very successful. In the past year, it expanded operations by buying Hot Metal Manufacturing for a price greater than the value of the net assets purchased. In the past year, the customer base has expanded much more than expected, and the company’s owners want to increase the
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- James Wright is the chief financial officer (CFO) for The Butcher Block, a major steakhouse restaurant chain. As CFO, James has the final responsibility for all aspects of financial reporting. James tells investors that The Butcher Block should post earnings of at least $1 million. In examining the preliminary year-end numbers, James notices that earnings are coming in at $950,000. He also is aware that The Butcher Block has been depreciating most of its restaurant equipment over a five-year useful life. He proposes to change the estimated useful life for a subset of the equipment to a useful life of seven, rather than five, years. By depreciating over a longer useful life, depreciation expense will be lower in the current year, increasing earnings to just over $1 million. It looks like The Butcher Block is going to exceed earnings of $1 million after all. Do you think James Wright’s change in the depreciable life of assets is ethical? What concerns might you have?arrow_forwardCollin Wilkes is the marketing manager at Darby Company. Last year, Collin recommended the company approve a capital investment project for the addition of a new product line. Collin’s recommendation included predicted cash inflows for five years from the sales of the new product line. Darby Company has been selling the new products for almost one year. The company has a policy of conducting annual post-audits on capital investments, and Collin is concerned about the one-year post-audit because sales in the first year have been lower than he estimated. However, sales have been increasing for the last couple of months, and Collin expects that by the end of the second year, actual sales will exceed his estimates for the first two years combined. Collin wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance evaluation.…arrow_forwardCollin Wilkes is the marketing manager at Darby Company. Last year, Collin recommended the company approve a capital investment project for the addition of a new product line. Collin’s recommendation included predicted cash inflows for five years from the sales of the new product line. Darby Company has been selling the new products for almost one year. The company has a policy of conducting annual post-audits on capital investments, and Collin is concerned about the one-year post-audit because sales in the first year have been lower than he estimated. However, sales have been increasing for the last couple of months, and Collin expects that by the end of the second year, actual sales will exceed his estimates for the first two years combined. Collin wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance evaluation.…arrow_forward
- Family Resorts, Inc., is a holding company for several vacation hotels in the northeastern and mid-Atlantic states. The firm originally purchased several old inns, restored the buildings, and upgraded the recreational facilities. Vacationing families have been well pleased with the inns because many services are provided that accommodate children and afford parents time for themselves. Since the completion of the restoration 10 years ago, the company has been profitable.Family Resorts has just concluded its annual meeting of regional and district managers. This meeting is held each November to review the results of the previous season and to help the managers prepare for the upcoming year. Before the meeting, the managers submitted proposed budgets for their districts or regions as appropriate. These budgets are reviewed and consolidated into an annual operating budget for the entire company. The 2008 budget has been presented at the meeting, and the managers accepted it. To evaluate…arrow_forwardFamily Resorts, Inc., is a holding company for several vacation hotels in the northeastern and Mid-Atlantic states. The firm originally purchased several old Inns, restored the buildings, and upgraded the recreational facilities. Vacationing families have been well pleased with the Inns because many services are provided that accommodate children and afford parents time for themselves. Since the completion of the restoration 10 years ago, the company has been profitable. Family Resorts has just concluded its annual meeting of regional and district managers. This meeting is held each November to review the results of the previous season and to help the managers prepare for the upcoming year. Before the meeting, the managers submitted proposed budgets for their districts or regions as appropriate. These budgets are reviewed and consolidated into an annual operating budget for the entire company. The 2008 budget has been presented at the meeting and the managers accepted it. To…arrow_forwardSpencer Wilkes is the marketing manager at Darby Company. Last year, Spencer recommended the company approve a capital investment project for the addition of a new product line. Spencer’s recommendation included predicted cash inflows for five years from the sales of the new product line. Darby Company has been selling the new products for almost one year. The company has a policy of conducting annual postaudits on capital investments, and Spencer is concerned about the one-year post-audit because sales in the first year have been lower than he estimated. However, sales have been increasing for the last couple of months, and Spencer expects that by the end of the second year, actual sales will exceed his estimates for the first two years combined. Spencer wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance…arrow_forward
- Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the Situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses. Required: According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory…arrow_forwardYou work for a firm of management consultants that offers assistance to new businesses. One of your clients is Blossom Manufacturing, a company that manufactures a small, but vital, component for the specialized lighting industry. Blossom is a new company (and a new client for your employer) and you have been assigned the task of advising it of its options for financing its inventory during the first few months. The marketing experts have told you that Blossom should have at least three months of inventory on hand so it can meet all demands from its customers. The annual production of the Blossom component is projected to be 140,400 units. Annual direct labour and direct material costs together are estimated at $351,000 per year. Variable manufacturing costs are estimated to be $210,600 per year; fixed manufacturing costs are projected to be $585,000 per year. Fixed marketing and administration costs are estimated at $819,000 per year. These projections are all for the company's first…arrow_forwardSpencer Wilkes is the marketing manager at Darby Company. Last year, Spencer recommended the company approve a capital investment project for the addition of a new product line. Spencer’s recommendation included predicted cash inflows for five years from the sales of the new product line. Darby Company has been selling new products for almost one year. The company has a policy of conducting annual post audits on capital investments, and Spencer is concerned about the one-year post-audit because sales in the first year have been lower than he estimated. However, sales have been increasing for the last couple of months, and Spencer expects that by the end of the second year, actual sales will exceed his estimates for the first two years combined. Spencer wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance…arrow_forward
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- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning