the first question of a ungraded practice test for my financial accounting 101. Please explain why the answers are the way that they are, i keep running into dead ends when i try to find a solution

It has been six years since Ron Cavender first opened Rydal Electronics Company. In that time, REC has grown to a company with 71 employees at three locations around the Philadelphia area. Ron is very proud of the company he has built. One aspect of that is his insistence on being an ethical company and a good citizen in the community. REC regularly donates to charities in the area and sponsors children's activities. Ron pays the employees very well compared to other companies in the area. He provides a set of benefits that allow his employees to be good citizens themselves. Ron insists that the company treat it customers with respect as well. This means never being deceptive with pricing or overselling the customer unnecessary items. Ron personally knows all the employees and regularly visits each location. He still goes out to customer sites to oversee the work and talk to the customers. As a result of Ron's efforts, REC is viewed very positively by the community. Much of the sales growth has been from recommendations by existing customers to their friends and families. Ron believes REC's reputation is one of its greatest assets and wants to protect it. He has reprimanded employees that have misled customers and even fired a sales person that did not treat customers and staff appropriately. While Ron can evaluate the practices of his sales staff and installation employees, he is less confident in evaluating his accounting staff. Since you were one of his first advisors, he has asked you to evaluate an action taken by a member of his accounting staff to ensure that it lives up to REC ethical standards. Please attach a business memo with your response. Question 1 25 pts Rydal Electronic Company has established a separate division for the manufacture of audio components. This division has separate accounting and reporting. It has reported profits every year since it was established three years ago. Due primarily to increased competition and price slashing in the industry, the current year's income statement is projected to report a loss of $25,000. Just before the end of the fiscal year, a memo from the division vice-president, Tom Adamson, to Mark Neter, REC's 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 this year will cause a violation of our debt covenants and cause the entire company to suffer. I suggest that we ship half of our inventory to M.B. Azevedo, Inc., in Oklahoma City. I know the company's president, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in this year, which will boost our loss to a profit. Then M.B. Azevedo will simply return the inventory next year after the financial statements have been issued. Understand the reporting effect: What is the effect on income before taxes of the sales transaction requested by the divisional vice-president? Specify the options: If Mark does not record the sales transaction requested by Tom, what is the effect on total assets and income before taxes of the inventory write- down? Identify the impact: Are investors and creditors potentially harmed by Tom's suggestion? Make a decision: Should Mark follow Tom's suggestion? Evaluate the decision: Does your answer change if you believe that recording the sales transaction will save employee jobs? If so, how? If not, why not? It has been six years since Ron Cavender first opened Rydal Electronics Company. In that time, REC has grown to a company with 71 employees at three locations around the Philadelphia area. Ron is very proud of the company he has built. One aspect of that is his insistence on being an ethical company and a good citizen in the community. REC regularly donates to charities in the area and sponsors children's activities. Ron pays the employees very well compared to other companies in the area. He provides a set of benefits that allow his employees to be good citizens themselves. Ron insists that the company treat it customers with respect as well. This means never being deceptive with pricing or overselling the customer unnecessary items. Ron personally knows all the employees and regularly visits each location. He still goes out to customer sites to oversee the work and talk to the customers. As a result of Ron's efforts, REC is viewed very positively by the community. Much of the sales growth has been from recommendations by existing customers to their friends and families. Ron believes REC's reputation is one of its greatest assets and wants to protect it. He has reprimanded employees that have misled customers and even fired a sales person that did not treat customers and staff appropriately. While Ron can evaluate the practices of his sales staff and installation employees, he is less confident in evaluating his accounting staff. Since you were one of his first advisors, he has asked you to evaluate an action taken by a member of his accounting staff to ensure that it lives up to REC ethical standards. Please attach a business memo with your response. Question 1 25 pts Rydal Electronic Company has established a separate division for the manufacture of audio components. This division has separate accounting and reporting. It has reported profits every year since it was established three years ago. Due primarily to increased competition and price slashing in the industry, the current year's income statement is projected to report a loss of $25,000. Just before the end of the fiscal year, a memo from the division vice-president, Tom Adamson, to Mark Neter, REC's 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 this year will cause a violation of our debt covenants and cause the entire company to suffer. I suggest that we ship half of our inventory to M.B. Azevedo, Inc., in Oklahoma City. I know the company's president, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in this year, which will boost our loss to a profit. Then M.B. Azevedo will simply return the inventory next year after the financial statements have been issued. Understand the reporting effect: What is the effect on income before taxes of the sales transaction requested by the divisional vice-president? Specify the options: If Mark does not record the sales transaction requested by Tom, what is the effect on total assets and income before taxes of the inventory write- down? Identify the impact: Are investors and creditors potentially harmed by Tom's suggestion? Make a decision: Should Mark follow Tom's suggestion? Evaluate the decision: Does your answer change if you believe that recording the sales transaction will save employee jobs? If so, how? If not, why not