Question
LO 2) Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is
LO 2) Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following projected information.
| ASTON CORPORATION PROJECTED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2017 | ||
|---|---|---|
| Sales |
| $28,995,000 |
| Interest revenue |
| 5,000 |
| Cost of goods sold | $14,000,000 |
|
| Depreciation | ??2,600,000 |
|
| Operating expenses | ??6,400,000 | ?23,000,000 |
| Income before income tax |
| 6,000,000 |
| Income tax |
| ??3,000,000 |
| Net income |
| $?3,000,000 |
| ASTON CORPORATION SELECTED BALANCE SHEET INFORMATION AT DECEMBER 31, 2017 | |
|---|---|
| Estimated cash balance | $?5,000,000 |
| Available-for-sale debt investments (at cost) | ?10,000,000 |
| Fair value adjustment (1/1/17) | 0 |
Estimated fair value at December 31, 2017:
| Security | Cost | Estimated Fair Value |
|---|---|---|
| A | $?2,000,000 | $?2,200,000 |
| B | ??4,000,000 | ??3,900,000 |
| C | ??3,000,000 | ??3,100,000 |
| D | ??1,000,000 | ??1,800,000 |
| Total | $10,000,000 | $11,000,000 |
Other information at December 31, 2017:
| Equipment | $3,000,000 |
| Accumulated depreciation (5-year SL) | 1,200,000 |
| New robotic equipment (purchased 1/1/17) | 5,000,000 |
| Accumulated depreciation (5-year DDB) | 2,000,000 |
The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight-line depreciation for production equipment.
Aston explains to Warren that it is important for the corporation to show a $7,000,000 income before taxes because Aston receives a $1,000,000 bonus if the income before taxes and bonus reaches $7,000,000. Aston also does not want the company to pay more than $3,000,000 in income taxes to the government.
Instructions
(a)
What can Warren do within GAAP to accommodate the president's wishes to achieve $7,000,000 in income before taxes and bonus? Present the revised income statement based on your decision.
(b)
Are the actions ethical? Who are the stakeholders in this decision, and what effect do Warren's actions have on their interests?
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Azure Security For Critical Workloads Implementing Modern Security Controls For Authentication Authorization And Auditing
Authors: Sagar Lad
1st Edition
1484289358, 978-1484289358
