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
MERGER ACCOUNTING: It may happen that, during a "take-over" of one company (A) by another company (B), shares in the latter company are issued to shareholders of the former co

QUESTION 1 The Bank of Mauritius has got various objects. It has therefore got various functions and powers in order to achieve the attainment of its objects. Discuss QUEST

Question 1: (A) What do you understand by Collective Bargaining? (B) What is collective bargaining from: (I) The economic point of view

Rights of co-guarantors among themselves A guarantor who that has paid more than his share below the guarantee is entitled such to contribution from his co-guarantors, although

Advantages of Negotiable Instruments (i) A negotiable instrument provides a creditor regarding a better remedy, since once it has been issued like or accepted whether applicab

Article 3 - State Responsibilty Article 3. This article is about the Characterisation of an act of a State as Internationally wrongful. A local law that results into violatio

Question 1: (a) What do you understand by the term Logistics Management? (b) What are the three types of costing which come under storage? (c) Explain the role of Public

QUESTION (a) In scientific ethics, list four fundamental principles of scientific research? (b) Give five differences between law and ethics (c) When does a ‘Conflict of

LEGISLATIVE OR PARLIAMENTARY CONTROL: (i)         Parliamentary approval and (ii)        Ministerial approval and (iii)       Publication into the England Gazette and

QUESTION The Employment Rights Act provides- No employer shall terminate a worker's agreement for reasons related to the worker's misconduct unless the worker has been affor