Case -AW-Q475

Case -AW-Q475 Online Services

 

In the March 202 meeting of Valleck Corporate’s board of directions, a question arose as to the way a possible obligation should be disclosed in the forthcoming financial statements for the year ended December 31. A veteran board member brought to the meeting a draft of a disclosure note that had been prepared by controller’s office for inclusion in the annual report. Here is the note
 

On May 9, 2011, the United States Environmental Protection Agency (EPA) issued a Notice of Violation (NOV) to Valleck alleging violations of the Clean Air Act. Subsequently, in June 2011, of approximately $853,000. The EPA alleges that Valleck exceeded applicable volatile organic substance emission limits. The Company estimates that the cost to achieve compliance will be $190,000; in addition the Company excepts to settle the EPA lawsuit for a civil penalty of $205,000 which will be paid in 2014.
 
“Where did we get the $205,000 figure?” he asked. On being informed that this is the amount negotiated last month by company attorneys with the EPA, the director inquiries, “Aren’t we supposed to report a liability for that in addition to the note?”
 
Required
 
Explain whether Valleck should report a liability in addition to the note. Why or Why not? For full disclosure should anything be added to the disclosure note itself?
 
Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2011. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 4.75%. The price paid for the bonds was $76 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2011, was $70 million.
 
Required
 
1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2011.
2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2011 (at the effective rate).
3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2011 (at the effective rate).
4. At what amount will Fuzzy Monkey report its investment in the December 31, 2011, balance sheet? Why?
5. How would Fuzzy Money’s 2011 statement of cash flows be affected by this investment?
 

You can read more about our case study assignment help services here.
 

How it Works

How It works ?

Step 1:- Click on Submit your Assignment here or shown in left side corner of every page and fill the quotation form with all the details. In the comment section, please mention Case Id mentioned in end of every Q&A Page. You can also send us your details through our email id support@assignmentconsultancy.com with Case Id in the email body. Case Id is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to Case Id . The date is asked to provide deadline.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id assignmentconsultancy.help@gmail.com and support@assignmentconcultancy.com must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.

Case Approach

Scientific Methodology

We use best scientific approach to solve case study as recommended and designed by best professors and experts in the World. The approach followed by our experts are given below:

Defining Problem

The first step in solving any case study analysis is to define its problem carefully. In order to do this step, our experts read the case two three times so as to define problem carefully and accurately. This step acts as a base and help in building the structure in next steps.

Structure Definition

The second step is to define structure to solve the case. Different cases has different requirements and so as the structure. Our experts understand this and follow student;s university guidelines to come out with best structure so that student will receive best mark for the same.

Research and Analysis

This is the most important step which actually defines the strength of any case analysis. In order to provide best case analysis, our experts not only refer case materials but also outside materials if required to come out with best analysis for the case.

Conclusion & Recommendations

A weak conclusion or recommendations spoil the entire case analysis. Our expert know this and always provide good chunks of volume for this part so that instructors will see the effort put by students in arriving at solution so as to provide best mark.

Related Services


 
Requirement 1 ($ in millions)
 
Investment in bonds (face amount)
Discount on bond investment (difference)
Cash (price of bonds)
 
Requirement 2
 
Cash
Discount on bond investment (difference)
Interest revenue
 
Requirement 3
 
Cash
Discount on bond investment (difference)
Interest revenue
 
Requirement 4
 
Fuzzy Monkey reports its investment in the December 31, 2011, balance sheet at its amortized cost – that is, its book value:
Investment in bonds
Less: Discount on bond investment
Amortized cost
 
Increases and decreases in the fair value between the time a debt security is acquired and the day it matures to a prearranged maturity value are relatively unimportant if sale before maturity isn’t an alternative. For this reason, if an investor has the “positive intent and ability” to hold the securities to maturity, investments in debt securities are classified as “held-to-maturity” and reported at amortized cost rather than fair value in the balance sheet.
 
Requirement 5
 
Fuzzy Monkey’s 2011 statement of cash flows would be affected as follows:
Operating cash flows: Cash inflow from interest of ????????
(Note: if Fuzzy Monkey prepares an indirect method statement of cash flows, it would have interest revenue of $3.30 + $3.31 = $6.61 included in net income, so would have to include an adjustment of $6.4 – $6.61 = ($0.21) to get from net income to cash from operations.)
Investing cash flows: Cash outflow from purchasing investments of ?????

 
Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $35 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company’s fiscal year ends on December 31.
2011 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $64 million as a speculative investment to be sold under suitable circumstances.
 
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $23 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and Oct 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are excepted to cause their fair value to continue to fall.
 
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $ 65 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30.
20 Purchased U.S Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
 
23 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
30 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Venture Company preferred stock was $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.
2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required
 
Prepare the appropriate journal entry for each transaction or event.
2011 ($ in millions)
October 18
Investment in Millwork Ventures preferred shares
Cash
 
October 31
Cash
Investment revenue
November 1
Investment in Holistic Entertainment bonds
Cash

November 1
Cash
Loss on sale of investments
Investment in Kansas Abstractors bonds

December 1
Investment in Household Plastics bonds
Cash

December 20
Investment in U.S. Treasury bonds
Cash

December 21
Investment in NXS common shares
Cash
December 23
Cash
Investment in U.S. Treasury bonds
Gain on sale of investments

 

($ in millions)
December 29
Cash
Investment revenue

December 31
Accrued interest:
Investment revenue receivable – Holistic
Entertainment
Investment revenue receivable – Household
Plastics
Investment revenue
 
Revaluations:
Net unrealized holding gains and losses—OCI
Fair value adjustment

Fair value adjustment
Net unrealized holding gains and losses—I/S

Note: Securities held-to-maturity are not adjusted to fair value.
 
Closing entry:
Net unrealized holding gains and losses—I/S (NXS)
Investment revenue
Gain on sale of investments (U.S. Treasury bonds)
Loss on sale of investments (Kansas Abstractors)
Income summary (to balance)

Note: Unlike for securities available-for-sale, unrealized holding gains and losses are included in income for trading securities.

 
2012
January 7
Cash
Loss on sale of investments (to balance)
Investment in NXS common shares (account balance)
 
Assuming no other transactions involving trading securities, the 2012 adjusting entry to remove the fair value adjustment associated with the sold securities would be:
December 31
Net unrealized holding gains and losses—I/S
Fair value adjustment (account balance)
 
On January 4, 2011, Runyan Bakery paid $400 million for 10 million shares of Lavery Labeling Company common stock. The investment represents a 30% interest in the net assets of Lavery and gave Runyan the ability to exercise significant influence over Lavery’s operations. Runyan chose the fair value option to account for this investment. Runyan received dividends of $7.00 per share on December 15, 2011, and Lavery reported net income of $160 million for the year ended December 31, 2011. The market value of Lavery’s common stock at December 31, 2011 was $38 per share. On the purchase date: the book value of Lavery’s net assets was $800 million and:
a. The fair value of Lavery’s depreciable assets, with an average remaining useful life of six years, exceeded their book value by $80 million.
b. The remainder of the excess of the cost of the investment over the book value of the net assets purchased was attributable to goodwill.
 
Required

 
1. Required all appropriate journal entries related to the investment during 2011, assuming Runyan accounting for this investment under the fair value option and accounts for the Lavery investment in manner similar to what they would use for trading securities.
 
2. What would be the effect of this investment on Runyan’s 2011 net income?
 
Requirement 1
 
Purchase ($ in millions)
Investment in Lavery Labeling shares
Cash
 
Net income
No entry

Dividends
Cash
Investment revenue
 
Adjusting entry
Net unrealized holding gains and losses—I/S
Fair value adjustment
 
Requirement 2
 
Because Runyan is accounting for the Lavery investment under the fair value option, the unrealized holding loss would be included in 2011 net income. Therefore, total effect on net income would be ????????????????????????????????
 
Indicate (by letter) the way each of the investments listed below most likely should be accounted for based on the information provided.
 
Item Reporting Category
 
__ _ 1. 35% of the nonvoting preferred stock T. Trading securities
of American Aircraft Company M. Securities held-to-maturity
__ _ 2. Treasury bills to be held-to-maturity A. Securities available-for-sale
__ _ 3. Two-year note receivable from affiliate E. Equity method
 
__ _ 4. Accounts receivable C. Consolidation
__ _ 5. Treasury bond maturing in one week N. None of these
 
__ _ 6. Common stock held in trading account
for immediate resale.
__ 7. Bonds acquired to profit from short-term differences in price.
__ _ 8. 35% of the voting common stock of Computer Storage Devices Company.
 
__ _ 9. 90% of the voting common stock of Affiliated Peripherals, Inc.
__ _ 10. Corporate bonds of Primary Smelting Company to be sold if interest rates fall 1/2%.
__ 11. 25% of the voting common stock of Smith Foundries Corporation: 51% family-owned by Smith family; fair value determinable.
__ _ 12. 17% of the voting common stock of Shipping Barrels Corporation: Investor’s CEO on the board of directors of Shipping Barrels Corporation.

 
Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011.
 
Item Reporting Method

__ 1. Commercial paper. N. Not reported
__ _ 2. Noncommitted line of credit. C. Current liability
__ 3. Customer advances. L. Long-term liability

 
__ _ 4. Estimated warranty cost. D. Disclosure note only
__ _ 5. Accounts payable. A. Asset
__ _ 6. Long-term bonds that will be callable by the creditor in the upcoming year unless an existing violation is not corrected (there is a reasonable possibility the violation will be corrected within the grace period).
 
__ _ 7. Note due March 3, 2012.
__ _ 8. Interest accrued on note, Dec. 31, 2011.
__ _ 9. Short-term bank loan to be paid with proceeds of sale of common stock.
 
__ 10. A determinable gain that is contingent on a future event that appears extremely likely to occur in three months.
__ _ 11. Unasserted assessment of back taxes that probably will be asserted, in which case there would probably be a loss in six months.
 
__ _ 12. Unasserted assessment of back taxes with a reasonable possibility of being asserted, in which case there would probably be a loss in 13 months.
__ _ 13. A determinable loss from a past event that is contingent on a future event that appears extremely likely to occur in three months.
__ _ 14. Bond sinking fund.
___ 15. Long-term bonds callable by the creditor in the upcoming year that are not expected to be called.
 

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2011 financial statements are issued on March 15, 2012.
 
a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2012, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
 
b. In November 2010, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2012, Eastern reached a settlement with state authorities. Based upon discussion with legal counsel, the Company feels it is probable that $140 million will be required to cover of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
 
c. Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.
 
d. At March 15,2012, the Environmental Protection Agency is in the process of investigating possible soil contamination at various locations of several companies including Eastern. The EPA has not yet proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of up to $33 million is reasonably possible.
 
Required
 
1. Determine the appropriate means of reporting each situation. Explain your reasoning.
2. Prepare any necessary journal entries and disclosure notes.
a. This is a loss contingency.
Note disclosure ?????????????
If yes, complete note disclosure below_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Accrual ??????????????????????? If yes, complete accrual below
 
b. This is a loss contingency.
Note disclosure ????????????? If yes, complete note disclosure below
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Accrual ??????????????????????? If yes, complete accrual below
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
 
c. This is a gain contingency.

Note disclosure ????????????? If yes, complete note disclosure below
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Accrual ??????????????????????? If yes, complete accrual below
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

d. Note disclosure ????????????? If yes, complete note disclosure below
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Accrual ??????????????????????? If yes, complete accrual below
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on the experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2010 were $3,000,000 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product
 
Accrued liability and expense
Warranty expense (2% x $2,500,000) ………………………………………….. 50,000
Estimated warranty liability ………………………………………………….. 50,000
Actual expenditures (summary entry)
Estimated warranty liability………………………………………….. 23,000
Cash, wages payable, parts and supplies, etc. …………………………………………. 23,000
 
In late 2011, the company’s claims experience was evaluated and it was determined that claims were far more than expected— 3% sales rather than 2%.
 
Required
 
1. Assuming sales of the sprinklers in 2011 were $4,100,000 million and warranty expenditures in 2011 totaled $93,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.
 
Requirement 1
 
Accrued liability and expense
Warranty expense
Estimated warranty liability

Actual expenditures (summary entry)
Estimated warranty liability
Cash, wages payable, parts and supplies, etc.
 
Requirement 2
 
Actual expenditures (summary entry)
Estimated warranty liability
Loss on product warranty
Cash, wages payable, parts and supplies, etc.
  *
Product Code-Case -AW-Q475
 

Looking for best Case -AW-Q475 online ,please click here
 

Summary