Doctors Maben, Orlando, and Clark have been in a group practice for several years

BTN 12-3 Doctors Maben, Orlando, and Clark have been in a group practice for several years. Maben and Orlando are family practice physicians, and Clark is a general surgeon. Clark receives many referrals for surgery from his family practice partners. Upon the partnership’s original formation, the three doctors agreed to a two-part formula to share income. Every month each doctor receives a salary allowance of $3,000. Additional income is divided according to a percent of patient charges the doctors generate for the month. In the current month, Maben generated 10% of the billings, Orlando 30%, and Clark 60%. The group’s income for this month is $50,000. Clark has expressed dissatisfaction with the income-sharing formula and asks that income be split entirely on patient charge percents.

Required
1. Compute the income allocation for the current month using the original agreement.
2. Compute the income allocation for the current month using Clark’s proposed agreement.
3. Identify the ethical components of this partnership decision for the doctors.

Click here for the solution: Doctors Maben, Orlando, and Clark have been in a group practice for several years

(Dividing the Bill) Assume that you and your friends go to a restaurant as a group

Group Exercise 8-35 (Dividing the Bill) Assume that you and your friends go to a restaurant as a group. At the end of the meal, you must decide how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. Another is to split the bill equally among the individuals.

Required:
1. Which system for dividing the bill is more equitable? Which system is easier to use? How does this issue relate to activity based costing?
2. Should ABC always identify the costs? Explain when and when not.

Click here for the solution: (Dividing the Bill) Assume that you and your friends go to a restaurant as a group

Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million

Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million. The firm recognizes that any unused portion of this budget will learn than its 15% cost of capital, thereby resulting in a present value of inflows that is less than the initial investment. The firm has summarized, in the following table, the key data to be used in selecting the best group projects.

Project Initial Investment IRR Present Value of inflows at 15%
A $5,000,000 17% $5,400,000
B 800,000 18 1,100,000
C 2,000,000 19 2,300,000
D 1,500,000 16 1,600,000
E 800,000 22 900,000
F 2,500,000 23 3,000,000
G 1,200,000 20 1,300,000

a. Use the internal rate of return (IRR) approach to select the best group of projects.
b. Use the net present value (NPV) approach to select the best group of projects.
c. Compare, contrast, and discuss your findings in parts a and b.
d. Which projects should the firm implement? Why?

Click here for the solution: Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million

Apply the controlled and affiliated group rules to determine whether a parent-subsidiary controlled group

Apply the controlled and affiliated group rules to determine whether a parent-subsidiary controlled group or an affiliated group exists in each of the following independent situations. Circle Y for yes and N for no.

Situation Parent- Subsidiary Controlled Group? Affiliated Group?

Throughout the year, Parent owns 65% of the stock of SubCo. Y N Y N

Parent owns 70% of SubCo. The other 30% of SubCo stock is owned by Senior, a wholly owned subsidiary of Parent. Y N Y N

For 11 months, Parent owns 75% of the stock of SubCo. For the last month of the tax year, Parent owns 100% of the SubCo stock. Y N Y N

Click here for the solution: Apply the controlled and affiliated group rules to determine whether a parent-subsidiary controlled group

You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems

(Issues Raised about Investment Securities) You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting surprises over the last few years. Recently, the controller has learned from the company’s auditors that there is authoritative literature that may apply to its investment in securities. She assumes that you are familiar with this pronouncement and asks how the following situations should be reported in the financial statements

Situation 1
Trading securities in the current assets section have a fair value that is $4,200 lower than cost.
Situation 2
A trading security whose fair value is currently less than cost is transferred to the available-for-sale category.
Situation 3
An available-for-sale security whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current.
Situation 4
A company’s portfolio of available-for-sale securities consists of the common stock of one company. At the end of the prior year, the fair value of the security was 50% of original cost, and this reduction in fair value was reported as an other than temporary impairment. However, at the end of the current year the fair value of the security had appreciated to twice the original cost.
Situation 5
The company has purchased some convertible debentures that it plans to hold for less than a year. The fair value of the convertible debentures is $7,700 below its cost.

Instructions
What is the effect upon carrying value and earnings for each of the situations above? Assume that these situations are unrelated.

Click here for the solution: You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems