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REQUIRED: answer the 4 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 4 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 fiscal year, a memo from the company's chief financial 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 write-down. The resulting loss for 2021 will cause a violation of our debt covenants and forse the company into bankruptey. I suggest that you ship half of our imentory to J.B. Sales, Ine., in Oklahoma City. I know the compary's president, and he will accept the imventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loas to a profit. Then J.B. Sales will simply return the inventory in 2022 after the finaneial 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 writedown? 3. Identify the impact: Are investors and creditors potentially harmed by the CFO's suggestion? 4. Make a decision: Should Jim follow the CFO's suggestion Step by Step Solution
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