NOTE: I NEED HELP WITH THESE 10 QUESTIONS,IT IS AN EMERGENCY PLEASE!
Use the following information to answer questions 1-4.
The Bayside Company uses the LIFO cost flow method to value inventory. In the current year, profit at Bayside is running unusually high. The corporate tax rate is also high this year but it is scheduled to decline significantly next year. In light of this information, the president of Bayside instructs the purchasing department to make a large purchase of inventory for delivery 3 days before the end of the year. The price of the inventory to be purchased has doubled during the year.
QUESTION 1
What would be the effect of this transaction on this year’s net income?
a. The net income could increase.
b. The net income could decrease.
c. There would be no effect on net income
d. There is not enough information to determine if there would be an effect.
QUESTION 2
What would be the effect of this transaction on this year's income tax expense?
a. The income tax expense could increase.
b. The income tax expense could decrease
c. There would be no effect on income tax expense.
d. There is not enough information to determine if there would be an effect.
QUESTION 3
If Bayside had been using the FIFO cost flow method to value inventory instead of the LIFO cost flow method, would the president have given the same directive?
a. Yes, the president would have given the same directive. The effect on net income and the income
tax expense would have been the same.
b. Yes, the president would have given the same directive. There would have been no effect on net income or the income tax expense.
c. No, the president would not have given the same directive. There would have been an opposite effect on net income and the income tax expense.
d. No, the president would not have given the same directive. There would have been no effect on net income or the income tax expense.
QUESTION 4
The president's actions are an example of "earnings management." Which of the following statements about earnings management is false?
a. Earnings management is illegal.
b. Earnings management can sometimes have a negative side effect (e.g., the company may not be able to pay for the additional inventory).
c. Earnings management can sometimes be considered to be unethical.
d. None of these statements is false.
Use the following information to answer questions 5-7.
Blue Bird Bus Company is suffering declining sales of its principal product, school buses. The bank has threatened to call due a note if the company’s net income declines next year. The president, Joe Blow, talks to his controller, Ed Meek, and suggests that if net income declines Ed will not receive his annual bonus and may even lose his job. Joe suggests that Ed lengthen the useful lives of the production equipment from 10 years to 15 years for depreciation purposes and to continue to use the straight line method. The next day, Ed Meek informs the president he has made the changes in the depreciation schedules for the upcoming year.
QUESTION 5
What would be the effect on Blue Bird's depreciation expense if the useful life of the production equipment was increased from 10 to 15 years?
a. The increased life would cause the depreciation expense to increase.
b. The increased life would cause the depreciation expense to decrease.
c. The increased life would have no effect on the depreciation expense.
d. There is not enough information to determine if there would be an effect.
QUESTION 6
What would be the effect on Blue Bird's net income if the useful life of the production equipment was increased from 10 to 15 years?
a. The increased life would cause the net income to increase.
b. The increased life would cause the net income to decrease.
c. The increased life would have no effect on the net income.
d. There is not enough information to determine if there would be an effect.
QUESTION 7
What do you think of the president's ethical behavior as it relates to this situation?
a. It may be unethical for the president to threaten the controller with losing his bonus and potentially his job.
b. It may be considered unethical for the president to manipulate the useful life of assets.
c. Both statements might be considered to be unethical.
d. Neither statement would ever be considered to be unethical.
Use the following information to answer questions 8-10.
The Boxcar Corporation has paid a total of $1 million in cash bonuses to its officers for 8 consecutive years. The board’s policy requires that, for this bonus to be paid, net cash provided by operating activities reported on the current year’s statement of cash flows must exceed $1 million. President and CEO, I.M. Troubled, is very concerned with producing annual operating cash flows to support the usual bonus. At the end of the current year, controller Willie Waffle presented the president with some disappointing news; the net cash flows provided by operating activities calculated by using the indirect method was only $970,000. The president, I.M. Troubled, asked Willie if there was any way to increase the operating cash flows by another $30,000. He said Willie’s job depended on it. Later in the day, Willie met with the president and suggested that they could reclassify a $60,000, 2-year note payable listed in the financing activities section as “Proceeds from a bank loan, $60,000” as an increase in accounts payable instead.
QUESTION 8
What would be the effect on operating cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable?
a. Net cash provided by operating cash flows would decrease.
b. Net cash provided by operating cash flows would increase.
c. Net cash provided by operating cash flows would not be affected.
d. There is not enough information to determine if there would be an effect.
QUESTION 9
What would be the effect on financing cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable?
a. Net cash provided by financing cash flows would decrease.
b. Net cash provided by financing cash flows would increase.
c. Net cash provided by financing cash flows would not be affected.
d. There is not enough information to determine if there would be an effect.
QUESTION 10
Assuming the controller does reclassify the proceeds of the bank loan as an increase in accounts payable, which of the following statements is true?
a. The controller's actions are ethical as long as he is doing what the CEO ordered him to do.
b. The CEO's actions are unethical because he is threatening the controller that he will lose his job if he doesn't make the change.
c. Both statements are true.
d. Neither statement is true.
QUESTION 1
The effect of the transaction on this year’s net income could be:
a. The net income could increase.
QUESTION 2
The effect of the transaction on this year's income tax expense could be:
a. The income tax expense could increase.
QUESTION 3
If Bayside had been using the FIFO cost flow method to value inventory instead of the LIFO cost flow method, the president would not have given the same directive. There would have been an opposite effect on net income and the income tax expense.
c. No, the president would not have given the same directive. There would have been an opposite effect on net income and the income tax expense.
QUESTION 4
The false statement about earnings management is:
a. Earnings management is illegal.
QUESTION 5
The effect on Blue Bird's depreciation expense if the useful life of the production equipment was increased from 10 to 15 years would be:
b. The increased life would cause the depreciation expense to decrease.
QUESTION 6
The effect on Blue Bird's net income if the useful life of the production equipment was increased from 10 to 15 years would be:
b. The increased life would cause the net income to decrease.
QUESTION 7
The president's ethical behavior as it relates to this situation may be considered unethical:
a. It may be unethical for the president to threaten the controller with losing his bonus and potentially his job.
QUESTION 8
The effect on operating cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable would be:
a. Net cash provided by operating cash flows would decrease.
QUESTION 9
The effect on financing cash flows on Boxcar's statement of cash flows if the proceeds from the bank loan were reclassified as an increase in accounts payable would be:
a. Net cash provided by financing cash flows would decrease.
QUESTION 10
Assuming the controller does reclassify the proceeds of the bank loan as an increase in accounts payable, the statement that is true:
b. The CEO's actions are unethical because he is threatening the controller that he will lose his job if he doesn't make the change.
QUESTION 1:
To determine the effect of this transaction on this year's net income, we need to understand how the LIFO method works. LIFO (Last In, First Out) assumes that the most recently purchased inventory is sold first. In this case, if the purchasing department makes a large purchase of inventory at the end of the year, the cost of that inventory will be higher due to the price doubling during the year. This means that the cost of goods sold will increase, which will result in a decrease in net income. Therefore, the correct answer is b. The net income could decrease.
QUESTION 2:
Since the corporate tax rate is high this year but scheduled to decline significantly next year, increasing the cost of goods sold by making a large purchase of inventory at the end of the year will result in a higher taxable income and, therefore, a higher income tax expense. So, the correct answer is a. The income tax expense could increase.
QUESTION 3:
If Bayside had been using the FIFO (First In, First Out) cost flow method instead of LIFO, the effect on net income and the income tax expense would have been different. FIFO assumes that the first inventory purchased is sold first. In this case, if the price of inventory has doubled during the year and Bayside uses FIFO, the cost of goods sold will be lower compared to using LIFO. This would result in higher net income and a higher income tax expense. Therefore, the president would not have given the same directive. So, the correct answer is c. No, the president would not have given the same directive. There would have been an opposite effect on net income and the income tax expense.
QUESTION 4:
The president's actions are an example of "earnings management," which refers to deliberate and planned actions by management to manipulate financial statements in order to achieve certain objectives. Earnings management can sometimes be considered unethical, especially when its purpose is to mislead investors or manipulate financial results. However, it is not always illegal. So, the correct answer is a. Earnings management is illegal.
QUESTION 5:
Increasing the useful lives of the production equipment from 10 to 15 years would result in a longer depreciation period. Since depreciation expense is calculated based on the useful life of the assets, the increased life would cause the depreciation expense to decrease. Therefore, the correct answer is b. The increased life would cause the depreciation expense to decrease.