discuss the general purpose of a depreciation allowance and themethod of computing the allowance. How does it impact taxesdue?

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Objective:

This activity has the purpose of helping students apply theappropriate method of cost behavior to a situation and apply themanagerial accounting concepts.

Chapter 2: Basic Cost Management Concepts and Accountingfor Mass Customization Operations.

Identify the most common variable and the fixed cost in aworkplace such as a pharmaceutical. Apply an appropriate method toanalyze the behavior of the cost and give your opinion about themethod you chose.

skyhamster121

2.) Discuss how marketable securities are valued on the balancesheet. 3.) How can the allowance for doubtful accounts be used toassess earnings quality? 4.) Why is the valuation of inventoriesimportant in financial reporting? 5.) Why would a company switch tothe LIFO method of inventory valuation in an inflationary period?6.) Which inventory valuation method, FIFO or LIFO, will generallyproduce an ending inventory value on the balance sheet that isclosest to current cost? 7.) Discuss the difference between thestraight-line method of depreciation and the accelerated methods.Why do companies use different depreciation methods for taxreporting and financial reporting? 8.) What is the purpose oflisting the account âCommitments and contingenciesâ on the balancesheet even through no dollar amounts appear? 9.) How is it possiblefor a company with positive retained earnings to be unable to pay acash dividend? 10.) The King Corporation has total annual revenueof $800,000; expenses other than depreciation of $350,000;depreciation expense of $200,000 for tax purposes; and deprecationexpense of $130,000 for reporting purposes. The tax rate is 34%.Calculate net income for reporting purposes and for tax purposes.What is the deferred tax liability?

orchidferret237

SILVER CLOUD COMPUTING

ACCT 551 Midterm Case Study

Due: Monday, March 21, 2016

Total Points Available: 150

You are a member of the board of directors of Silver Cloud Computing, a new company that provides cloud computing services. The company began operations on January 1. It acquired financing from the issuance of common stock for $60,000,000 and long-term debt for $80,000,000. The following projected income statement and balance sheet was prepared by the external accountant prior to the start of operations. All amounts are in thousands.

Silver Cloud Computing
Projected Income Statement
First Year of Operations
Sales		$105,000
Expenses:
Wages and salaries	$30,000
Bad debt expense	4,000
Depreciation	50,000
Research and development	12,000	96,000
Operating income before bonus		$ 9,000
Bonus		900
Operating income		$ 8,100
Interest expense		4,000
Income before taxes		$ 4,100
Income taxes (40%)		1,640
Net income		$ 2,460

Silver Cloud Computing
Projected Balance Sheet
December 31 of First Year
Assets:
Cash	$ 4,560
Accounts receivable, net of allowance of 4,000	32,000
Net computers	150,000
Total assets	$186,560
Liabilities & Shareholders' Equity:
Accounts payable	$ 4,100
Long-term debt	80,000
Common stock	100,000
Retained earnings	2,460
Total liabilities and shareholders' equity	$186,560

A CEO was hired just prior to the commencement of operations. After examining the projections for the first year, the CEO presented the following suggestions and revised projected income statement to the board of directors at their meeting at the beginning of the year.

1. Slash research and development expenditures, which are paid in cash, from $12 million to $5 million.

2. Double the estimated life of the computers from 4 years to 8 years, which will decrease depreciation expense from $50 million to $25 million. Because identical accounting procedures are used for taxes, no deferred taxes will be generated.

3. Reduce the allowance for doubtful accounts by 50%.

Following is the revised projected income statement for Year 1 proposed by the CEO using the alternative accounting procedures and operating decisions.

(in thousands)

Sales		$105,000
Expenses:
Wages and salaries	$ 30,000
Bad debt	2,000
Depreciation	25,000
Research and development	5,000	62,000
Operating income before bonus		$ 43,000
Bonus		4,300
Operating income		$ 38,700
Interest expense		4,000
Income before taxes		$ 34,700
Income taxes (40%)		13,880
Net income		$ 20,820

Additional notes:

The presidentâs compensation package at Silver Cloud Computing is a $1,000,000 salary with a cash bonus of 10% of operating income before the bonus.

Original depreciation of the computers was calculated using straight-line depreciation over a 4 year period with no salvage value.

The taxes and bonus are paid with cash.

Required:

From the viewpoint of a member of the board of directors that addresses the proposed changes, the future ramifications of those changes on the company, and any ethical issues related to the proposed changes.

This assignment has to be 10 pages long, can someone please just give me alist of talking points to go off of? I really don't even know where to start.

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