Explain ethics & financial reporting , Business Law and Ethics

Pat Clark is the controller for Best Pharma, a publicly-held pharmaceuticals manufacturer in Wilmington, Delaware.  In early December 2011, Pat's boss, CEO Bernie Skilling, approached her with the following news:  "I've come up with an idea for improving our results for this year.  My golfing buddy is the CEO of Wright Drugs.  His company owns the identical chemical analysis machine which we purchased last year.  He is willing to exchange his machine for ours, and since the fair value of our machine is as high as it is, we should be able to book a significant gain on the exchange.  I want you to prepare an analysis of how much we will be able to record and how the transaction will affect our financial statements.  Remember, we need this deal to improve our pretax income by at least $500,000."

The chemical analysis machine to which Bernie referred had just recently been invented and was purchased by Best Pharma at the beginning of 2010.  The machine was in great demand as soon as it was marketed, but recently many companies have not been able to acquire this model due to long production backlogs and the manufacturer's involvement in a patent dispute with its inventor.  As a result, the resale value of this model has skyrocketed, approaching the amount Best Pharma originally paid for the machine in some cases. 

            After Bernie left, Pat gathered the following information:

            For Best Pharma's machine:

                        Historical cost                                                              1,750,000

                        Accumulated depreciation (as of the date of the

proposed exchange in Dec. 2009)         (725,000)

                        Fair value                                                                     1,650,000

(Note: Wright Drugs machine is the exact model in the same condition, so fair value of its machine is identical to Best Pharma's machine.)

Required:

a.) Based on Pat's information above, what journal entry (or entries), if any, should Pat propose regarding the exchange with Wright Drugs?  Explain your answer. 

b.) Regardless of your answer in part a, if Pat were to conclude that recording a gain of at least $500,000 is not appropriate for this exchange, what course of action should she take?  Should she still record the gain according to Bernie's request? Explain.

Posted Date: 3/18/2013 1:45:12 AM | Location : United States







Related Discussions:- Explain ethics & financial reporting , Assignment Help, Ask Question on Explain ethics & financial reporting , Get Answer, Expert's Help, Explain ethics & financial reporting Discussions

Write discussion on Explain ethics & financial reporting
Your posts are moderated
Related Questions
QUESTION 1 (a) Section 45(10) provides for remedies that the Independent Review Panel may recommend if it finds merit in an application for review. State three of those remedie

Question: Consider the following formulation of Kant's Categorical Imperative: ‘Act only to that maxim by which you can at the same time will that it should become a universal

Adequacy of consideration - Law of Contract Well provided that consideration is sufficient, or actual it necessitate not be adequate.  Hence the court will not compare the val

Transfer or Passing of Property - Sales of Goods Perhaps assuming like the seller has a right to sell the goods, so it like necessary to determine the precise moment the trans

Obiter Dictum Thus now  "by the way" statement made through a judge before delivering his judgement within  a view to  strengthening or re-enforcing his reasons to the decis

Question 1: Describe the types of pallets that exist, and suggest the one that is more suitable to an organization that has a high variety of low-value items, which high stock

PROOF OF DEBTS:                                       Many of the rules of bankruptcy apply to the discharge of the company's debts: s.310.  The liquidator must obviously requ

lord Coleridge - Judicial elucidation of acts: However lord Coleridge stated in Rv PETERS  as like "I am quite aware which dictionaries are not to be taken as authoritative ex

Incorporation  Osborne's "Concise Law Dictionary" defines incorporation as a "merging together to form a single whole; conferring legal personality upon an association of indi

Termination - Duties of Owner Although below S.12 of the Act the hirer may on any time before the final payment may or instalment falls due to terminate the agreement through li