PLEASE GIVE ENOUGHT INFORMATION AND DETAILS

1. The Jaecke Group, Inc. manufacturers various kinds of hydraulic pumps. In June 2021, the company signed a four-year purchase agreement with one of its main parts suppliers, Hydraulics, Inc. Over the four-year period, Jaecke has agreed to purchase 100,000 units of a key component used in the manufacture of its pumps. The agreement allows Jaecke to purchase the component at a price lower than the prevailing market price at the time of purchase. As part of the agreement, Jaecke will lend Hydraulics $200,000 to be repaid after four years with no stated interest (the prevailing market rate of interest for a loan of this type is 10%). Jaeckes chief accountant has proposed recording the notes receivable at $200,000. The parts inventory purchase from Hydraulics over the next four years would then be recorded at the actual prices paid. You do not agree with the chief accountants valuation of the note and his intention to value the parts inventory acquired over the four-year period of the agreement at actual prices paid.What entry would you use to account for the initial transaction and why do you have a different opinion than the chief accountant? What entry would you use to account for the subsequent purchase of 25,000 units of the component for $650,000 when its market value is 26.60 per unit and why is this one different as well?
2. The cloudy afternoon mirrored the mood of the conference of division managers. Claude Meyer, assistant to the controller for Hunt Manufacturing, wore one of the gloomy faces that were just emerging from the conference room. Wow, I knew it was bad, but not that bad, Claude thought to himself. I dont look forward to sharing those numbers with shareholders. The numbers he discussed with himself were 4Q losses which more than offset the profits of the first three quarters. Everyone had known for some time that poor sales forecast and production delays had wreaked havoc on the bottom line, but most were caught off guard by the severity of the damage. Later that night he sat alone in his office, scanning the preliminary financial statements on this computer. Claude developed a plan and the next day he eagerly explained it to Susan Barr, the controller of Hunt. The plan involved $300 million in convertible bonds issued three years earlier.

Meyer: By swapping stock for the bonds, we can eliminate a substantial liability from the balance sheet, wipe out most of our interest expense, and reduce our loss. In fact, the book value of the bonds is significantly more than the market value of the stock wed issue. I think we can produce a profit.

Barr: But Claude, our bondholders are not inclined to convert the bonds.

Meyer: Right. But, the bonds are callable. As of this year, we can call the bonds at a call premium of 1%. Given the choice of accepting that redemption price of converting to stock, theyll all convert. We wont have to pay a cent. And, since no cash will be paid, we wont pay taxes either.

Do you perceive an ethical dilemma? What would be the impact of following up on Claudes plan? Who would benefit and who would be injured?