Explain ethics & financial reporting , Business Law and Ethics

Assignment Help:

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.


Related Discussions:- Explain ethics & financial reporting

Manage the currency risks using the futures contract, Question 1: (a) "...

Question 1: (a) "A tourist resort which does business in a single currency is not exposed to currency risk." Discuss (use example to support your answer). (b) Case: Hedging

State article 9 of air and outer space law, State Article 9 of air and oute...

State Article 9 of air and outer space law Article 9 states that each contracting State may, for reasons of military necessity or public safety, restrict or prohibit uniformly

Functions and powers of the united nations general assembly, What are the f...

What are the functions and powers of the United Nations General Assembly? The functions and powers of the United Nations General Assembly are as illustrated here: • To see a

Provisional contracts - law of contract, Provisional Contracts - Law of Con...

Provisional Contracts - Law of Contract However occasionally an agreement may be illustrated through the parties thereto as being as "a provisional agreement" until a legally

Sense of urgency-entrepreneurship development, Sense of Urgenc: Entreprene...

Sense of Urgenc: Entrepreneurs have a never-ending sense of urgency to develop their ideas. Inactivity makes them impatient, tense, and uneasy. They thrive on activity and are tir

Laws and regulations, Here, we have outlined the utility of National Buildi...

Here, we have outlined the utility of National Building Code. We have explained the main features of Factories Act. Some of the provisions of Electricity Act and Rules which are re

The health and safety issues in the hospitality industry, QUESTION 1 (i...

QUESTION 1 (i) What are the principles applicable regarding the unjustified termination of a contract of employment (ii) What would be your views regarding the legal issues

Civil remedies by a copyright owner, QUESTION 1 (a) List down the remed...

QUESTION 1 (a) List down the remedies that are available for breach of contract (b) Elaborate on two of them QUESTION 2 What are the duties of seller and buyer under

Give detail explanation of credibility problem, Give detail explanation of ...

Give detail explanation of Credibility problem There are indications that such credibility problem stems from a tension between the goal of encouraging innovation and investme

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd