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REQUIRED: Answer the 2 questions with conceptual and numerical analysis. AP6-5 Horizon Corporation manufactures personal computers. The company began operations in 2012 and reported profits
REQUIRED: Answer the 2 questions with conceptual and numerical analysis. AP6-5 Horizon Corporation manufactures personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry. 2020 's income statement reported a loss of $20 million. Just before the end of the 2021 flscal year, a memo from the company's chief flnancial officer (CFO) to Jim Fielding, the company controller, included the following comments: If we don't do something about the large amount of unsold computers already manufactured, our auditors will require us to record a writedown. The resulting loss for 2021 will cause a violation of our debt covenants and foree the company into bankruptey. I suggest that jou ship half of our imentory to J.B. Sales, Ine., in Oklahoma City. I know the company's president, and he will accept the inventory and acknowledge the shipment as a purchase. We can resord the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply return the inventory in 2022 after the financial statements have been issued. Required: 1. Understand the reporting effect: What is the effect on income before taxes of the sales transaction requested by the CFO ? 2. Specify the options: If Jim does not record the sales transaction requested by the CFO, what is the effect on total assets and income before taxes of the inventory write-down
REQUIRED: Answer the 2 questions with conceptual and numerical analysis.
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