Market vs Book Value: The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology. He then formed a corporation and invested $200,000 in setting up a production plant. He believes that he could sell his patent for $50 million.
a. What are the book value and market value of the firm?
b. If there are 2 million shares of stock in the new corporation, what would be the price per share and the book value per share?
Click here for the solution: The founder of Alchemy Products, Inc., discovered a way to turn lead into gold and patented this new technology
Showing posts with label discovered. Show all posts
Showing posts with label discovered. Show all posts
Tuesday, April 12, 2016
Friday, October 9, 2015
Max Weinberg Company discovered the following errors made in January 2008
E4-12 Max Weinberg Company discovered the following errors made in January 2008.
1. A payment of Salaries Expense of $600 was debited to Equipment and credited to Cash, both for $600.
2. A collection of $1,000 from a client on account was debited to Cash $100 and credited to Service Revenue $100.
3. The purchase of equipment on account for $980 was debited to Equipment $890 and credited to Accounts Payable $890.
Instructions
(a) Correct errors by reversing the incorrect entry and preparing the correct entry.
(b) Correct the errors without reversing the incorrect entry.
Click here for the solution: Max Weinberg Company discovered the following errors made in January 2008
1. A payment of Salaries Expense of $600 was debited to Equipment and credited to Cash, both for $600.
2. A collection of $1,000 from a client on account was debited to Cash $100 and credited to Service Revenue $100.
3. The purchase of equipment on account for $980 was debited to Equipment $890 and credited to Accounts Payable $890.
Instructions
(a) Correct errors by reversing the incorrect entry and preparing the correct entry.
(b) Correct the errors without reversing the incorrect entry.
Click here for the solution: Max Weinberg Company discovered the following errors made in January 2008
Thursday, August 13, 2015
Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division
Case 11-22 (Ethics and the Manager; Rigging Standards) Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division. In looking over the past several years of quarterly income statements at the Home Security Division, she noticed that the first-quarter profits were always poor, the second-quarter profits were slightly better, the third-quarter profits were again slightly better, and the fourth quarter always ended with a spectacular performance in which the Home Security Division managed to meet or exceed its target profit for the year. She also was concerned to find letters from the company’s external auditors to top management warning about an unusual use of standard costs at the Home Security Division.
When Ms. Cummins ran across these letters, she asked the assistant controller, Gary barber, if he knew what was going on at the Home Security Division. Gary said that it was common knowledge in the company that the vice president in charge of the Home Security Division, Preston Lansing, had rigged the standards at his division in order to produce the same quarterly income pattern every year. According to the company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold.
Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. Lansing had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the company’s accounting manuals actually explicitly required this. So for many years Lansing had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of growing profits in the first three quarters, followed by a big “Christmas present” of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year.)
Ms. Cummins was concerned about these revalations and attempted to bring up the subject with the president of Merced Home Products, but was told that “we all know what Landing’s doing, but as long as he continues to turn in such good reports, don’t bother him.” When Ms. Cummins asked if the board of directors was aware of the situation, the president somewhat testily replied, “Of course they are aware.”
Required:
1. How did Preston Lansing probably “rig” the standard costs – are the standards set too high or too low? Explain.
2. Should Preston Lansing be permitted to continue his practice of managing reported profits?
3. What should Stacy Cummins do in this situation?
Click here for the solution: Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division
When Ms. Cummins ran across these letters, she asked the assistant controller, Gary barber, if he knew what was going on at the Home Security Division. Gary said that it was common knowledge in the company that the vice president in charge of the Home Security Division, Preston Lansing, had rigged the standards at his division in order to produce the same quarterly income pattern every year. According to the company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold.
Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. Lansing had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the company’s accounting manuals actually explicitly required this. So for many years Lansing had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of growing profits in the first three quarters, followed by a big “Christmas present” of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year.)
Ms. Cummins was concerned about these revalations and attempted to bring up the subject with the president of Merced Home Products, but was told that “we all know what Landing’s doing, but as long as he continues to turn in such good reports, don’t bother him.” When Ms. Cummins asked if the board of directors was aware of the situation, the president somewhat testily replied, “Of course they are aware.”
Required:
1. How did Preston Lansing probably “rig” the standard costs – are the standards set too high or too low? Explain.
2. Should Preston Lansing be permitted to continue his practice of managing reported profits?
3. What should Stacy Cummins do in this situation?
Click here for the solution: Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division
Tuesday, August 4, 2015
Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts
E11-16 Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts.
The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000. The shares have not been issued.
A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.
Instructions
Prepare the correcting entries at December 31.
Click here for the solution: Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts
The declaration and payment of $50,000 cash dividend was recorded as a debit to Interest Expense $50,000 and a credit to Cash $50,000.
A 10% stock dividend (1,000 shares) was declared on the $10 par value stock when the market value per share was $16. The only entry made was: Retained Earnings (Dr.) $10,000 and Dividend Payable (Cr.) $10,000. The shares have not been issued.
A 4-for-1 stock split involving the issue of 400,000 shares of $5 par value common stock for 100,000 shares of $20 par value common stock was recorded as a debit to Retained Earnings $2,000,000 and a credit to Common Stock $2,000,000.
Instructions
Prepare the correcting entries at December 31.
Click here for the solution: Before preparing financial statements for the current year, the chief accountant for Springer Company discovered the following errors in the accounts
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