Merrimac Corporation began manufacturing pinball machines in the 1950s. By 1995, the pinball machine market had declined significantly, and Merrimac opened a new division to develop and manufacture video games. The pinball machine division was phased out in 2000. Since then, Merrimac has concentrated exclusively on the development and manufacture of video games for both the home and commercial markets. In 2005, Merrimac acquired a chain of video game parlors. This division had only moderate success. James Heuga has been hired as the accounting manager, and he has been assigned to prepare the financial statements for the fiscal year ended December 31. Heuga is concerned about the proper financial statement presentation of several transactions that occurred during the year. Bill Werner, controller of Merrimac, has agreed to discuss these transactions with Heuga. The transactions in question include the following: A. During the year-end physical inventory, the FIFO-based inventory of replacement parts for a 1998 model video game was determined to be obsolete. The inventory was written down to its salvage value, and a material $46,000 loss was recorded. B. Since 2001, Merrimac has held 25% of the outstanding common stock of Barny Co. Merrimac properly accounts for its investment using the equity method. During the current year, Barney reported net income of $100,000 and distributed dividends of $40,000. C. Merrimac provides an assurance-type warranty on its commercial machines for 2 years subsequent to the sale. The warranty costs associated with the current year's sales are estimated to be $104,200. D. Merrimac is the plaintiff in a lawsuit that will go to trial early next year. The company's lawyers believe it is probable that Merrimac will win a favorable judgment in the amount of $242,000. E. Merrimac is the defendant in a lawsuit filed by one of its customers. The company's lawyers believe it is probable that Merrimac will lose and reasonably estimate the settlement to be approximately $164,000, a material amount. A. For each of the five transactions, explain how and why it affects Merrimac Corporation's a. Income statement, b. Statement of financial position (exclusive of net income effects), C. Cash flow statement (exclusive of net income effects), and d. Note disclosure