Snow Big Corp. (SBC) recently filed for bankruptcy protection. The company manufactures downhill skis and reports under ASPE. With the increased popularity of such alternative winter sports as snowboarding and tubing, sales of skis are sagging. The company has decided to start a new line of products that focuses on the growing industry surrounding snowboarding and tubing. At present, however, the company needs interim financing to pay suppliers and its payroll. It also needs a significant amount of cash so that it can reposition itself in the marketplace. Management is planning to go to the bank with draft financial statements to discuss additional financing. The company's year end is December 31, 2019, and it is now January 15, 2020. Current interest rates for loans are 5%, but because it is in bankruptcy protection, SBC feels that it will likely have to pay at least 15% on any loan. There is concern that the bank will turn the company down. At a recent management meeting, the company decided to convert its ski manufacturing facilities into snowboard manufacturing facilities. It will no longer produce skis. Management is unsure if the company will be able to recover the cost of the ski inventory. Although the conversion will result in significant expenditures, the company feels that this is justified if SBC wants to remain a viable business. The shift in strategic positioning will not result in any layoffs, as most employees will work in the retrofitted plant. The remaining employees will be trained in the new business. The conversion to snowboard manufacturing facilities would not require selling the ski manufacturing machines, as these machines can be used to produce snowboards. The company estimates the results and cash flows from its operation of selling skis to be a $20-million loss. On December 15, 2019, the company entered into an agreement with Cashco Ltd. to sell its entire inventory in ski bindings to Cashco. Under the terms of the deal, Cashco paid $10 million cash for the inventory (its regular selling price at the time). The cost to SBC of this inventory was $6 million and so a profit of $4 million was booked pre-tax. In a separate deal, SBC agreed to buy back the inventory in January for $10,125,000. Before filing bankruptcy protection, the company was able to buy a large shipment of snow tubes wholesale for a bargain price of $7 million from a supplier that was in financial trouble. The value of the inventory is approximately $10 million. The inventory was sitting in the SBC manufacturing facility taking up a lot of space. Because the manufacturing facility was being renovated, SSC reached an agreement with its leading competitor, Alpine Gear Ltd. (AGL). According to the contract, AGL agreed to purchase the snow tubes from SBC for $8 million, and SSC shipped the inventory on December 31 to arrive on January 5. The inventory was shipped f.o.b. shipping point. SBC normally reimburses its customers if the inventory is damaged in transit. SBC has a tentative verbal agreement that it will repurchase the snow tubes that AGL does not sell by the time the renovations are complete (in approximately six months). The buyback price will include an additional amount that will cover storage and insurance costs. REQUIRED: Adopt the role of Rachel Glover-the company controller-and discuss the financial reporting issues related to the preparation of the financial statements for the year ended December 31, 2019. (use the case analysis framework covered in the course, refer to the "Discussion Section" for reference if needed).

An officer for a large construction company is feeling nervous. The anxiety is caused by a new excavator just released onto the market. The new excavator makes the one purchased by the company a year ago obsolete. As a result, the market value for the company’s excavator has dropped significantly, from $600,000 a year ago to $50,000 now. In ten years, it would be worth only $3,000. The new excavator costs only $950,000 and would increase operating revenues by $90,000 annually. The new equipment has a ten-year life and expected salvage value of $175,000. The tax rate is 35%, the CCA rate, 25% for both excavators, and the required rate of return for the company is 14%. What is the NPV of the new excavator?

II.  Jerry Prior, Beeler Corporation’s controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the double-declining-balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying value of $2,000,000 and a fair value of $2,180,000. The gain on the sale would be reported in the income statement. He doesn’t want to highlight this method of increasing income. He thinks, “Why don’t I increase the estimated useful lives and the salvage values? That will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. I may be able to save my job and those of my staff.” Instructions…

Members of the board of directors of Safety Place have received the following operating income data for the year ended May 31, 2018: (Click the icon to view the operating income data.) Members of the board are surprised that the industrial systems product line is not profitable. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $80,000 and decrease fixed selling and administrative expenses by $10,000. Read the requirements. Requirement 1. Prepare a differential analysis to show whether Safety Place should drop the industrial systems product line. (Use parentheses or a minus sign to enter decreases to profits.) in operating income