Accounting Communicationing class, is confused as to why there is a sepalthat it would be much simpler to just credit the asset that is being depreclated directly insteadExplain to your friend in an informal memo a possible advantage that keeping the cost and accumu-EYK9-6.crediting accumulated depreciation.RequiredEYK9-7. Accounting Ethics Case Linda Tristan, assistant controller for Ag-Growth, Inc., a biotechnologyfirm, has concerns about the accounting analysis for the firm's purchase of a land site and buildingfrom Hylite Corporation. The price for this package purchase was $1,800,000 cash. A memoran-dum from the controller, Greg Fister, stated that the journal entry for this purchase should debitLand for $1,350,000, debit Building for $450,000, and credit Cash for $1,800,000. The building, alated depreciation separate can have for an analyst.used laboratory facility, is to be depreciated over 10 years with a zero salvage value.The source documents supporting the transaction include two appraisals of the property, onedone for Ag-Growth and one done for Hylite Corporation. The appraisal for Ag-Growth valuedthe land at $1,000,000 and the building at $500,000. The appraisal for Hylite Corporation (doneby a different appraiser) valued the land at $1,500,000 and the building at $750,000. Negotiationsbetween the two firms finally settled on an overall price of $1,800,000 for the land and the building.Tristan asked Fister how he arrived at the amounts to be recorded for the land and building sinceeach appraisal valued the land at only twice the building's value. "Well," replied Fister, "I used the$1,500,000 land value from Hylite 's appraiser and the $500,000 building value from our appraiser.That relationship shows the land to be worth three times the building's value. Using that relationship, I assigned 75 percent of our actual purchase price of $1,800,000 to the land and 25 percent ofthe purchase price to the building." Cambridge Business PublishersChapter 9Accounting for Long-Lived and Intangible Assets"But why do it that way?" asked Tristan."Because it will improve our profits, before income taxes, by $150,000 over the next decade,"replied Fister."But it just doesn't seem right," commented Tristan.99RequiredHow does the accounting analysis by Fister improve profits before income taxes by $150,000а.over the next decade?b.Is the goal of improving profits a sufficient rationale to defend the accounting analysis byFister?2Do you agree with Fister's analysis? Briefly explain.What actions are available to Tristan to resolve her concerns with Fister's analysis?с.d.Corporate Social Responsibility Problem Unlike Tesla Motors' emphasis on electric engines,Cummins, Inc. is best known for its design and manufacturing of diesel engines. Go to the Cum-and navigate to the section on sustainability.

Question
Asked Sep 28, 2019
52 views

A-D

Accounting Communication
ing class, is confused as to why there is a sepal
that it would be much simpler to just credit the asset that is being depreclated directly instead
Explain to your friend in an informal memo a possible advantage that keeping the cost and accumu-
EYK9-6.
crediting accumulated depreciation.
Required
EYK9-7. Accounting Ethics Case Linda Tristan, assistant controller for Ag-Growth, Inc., a biotechnology
firm, has concerns about the accounting analysis for the firm's purchase of a land site and building
from Hylite Corporation. The price for this package purchase was $1,800,000 cash. A memoran-
dum from the controller, Greg Fister, stated that the journal entry for this purchase should debit
Land for $1,350,000, debit Building for $450,000, and credit Cash for $1,800,000. The building, a
lated depreciation separate can have for an analyst.
used laboratory facility, is to be depreciated over 10 years with a zero salvage value.
The source documents supporting the transaction include two appraisals of the property, one
done for Ag-Growth and one done for Hylite Corporation. The appraisal for Ag-Growth valued
the land at $1,000,000 and the building at $500,000. The appraisal for Hylite Corporation (done
by a different appraiser) valued the land at $1,500,000 and the building at $750,000. Negotiations
between the two firms finally settled on an overall price of $1,800,000 for the land and the building.
Tristan asked Fister how he arrived at the amounts to be recorded for the land and building since
each appraisal valued the land at only twice the building's value. "Well," replied Fister, "I used the
$1,500,000 land value from Hylite 's appraiser and the $500,000 building value from our appraiser.
That relationship shows the land to be worth three times the building's value. Using that relation
ship, I assigned 75 percent of our actual purchase price of $1,800,000 to the land and 25 percent of
the purchase price to the building."
help_outline

Image Transcriptionclose

Accounting Communication ing class, is confused as to why there is a sepal that it would be much simpler to just credit the asset that is being depreclated directly instead Explain to your friend in an informal memo a possible advantage that keeping the cost and accumu- EYK9-6. crediting accumulated depreciation. Required EYK9-7. Accounting Ethics Case Linda Tristan, assistant controller for Ag-Growth, Inc., a biotechnology firm, has concerns about the accounting analysis for the firm's purchase of a land site and building from Hylite Corporation. The price for this package purchase was $1,800,000 cash. A memoran- dum from the controller, Greg Fister, stated that the journal entry for this purchase should debit Land for $1,350,000, debit Building for $450,000, and credit Cash for $1,800,000. The building, a lated depreciation separate can have for an analyst. used laboratory facility, is to be depreciated over 10 years with a zero salvage value. The source documents supporting the transaction include two appraisals of the property, one done for Ag-Growth and one done for Hylite Corporation. The appraisal for Ag-Growth valued the land at $1,000,000 and the building at $500,000. The appraisal for Hylite Corporation (done by a different appraiser) valued the land at $1,500,000 and the building at $750,000. Negotiations between the two firms finally settled on an overall price of $1,800,000 for the land and the building. Tristan asked Fister how he arrived at the amounts to be recorded for the land and building since each appraisal valued the land at only twice the building's value. "Well," replied Fister, "I used the $1,500,000 land value from Hylite 's appraiser and the $500,000 building value from our appraiser. That relationship shows the land to be worth three times the building's value. Using that relation ship, I assigned 75 percent of our actual purchase price of $1,800,000 to the land and 25 percent of the purchase price to the building."

fullscreen
Cambridge Business Publishers
Chapter 9
Accounting for Long-Lived and Intangible Assets
"But why do it that way?" asked Tristan.
"Because it will improve our profits, before income taxes, by $150,000 over the next decade,"
replied Fister.
"But it just doesn't seem right," commented Tristan.
99
Required
How does the accounting analysis by Fister improve profits before income taxes by $150,000
а.
over the next decade?
b.
Is the goal of improving profits a sufficient rationale to defend the accounting analysis by
Fister?
2
Do you agree with Fister's analysis? Briefly explain.
What actions are available to Tristan to resolve her concerns with Fister's analysis?
с.
d.
Corporate Social Responsibility Problem Unlike Tesla Motors' emphasis on electric engines,
Cummins, Inc. is best known for its design and manufacturing of diesel engines. Go to the Cum-
and navigate to the section on sustainability.
help_outline

Image Transcriptionclose

Cambridge Business Publishers Chapter 9 Accounting for Long-Lived and Intangible Assets "But why do it that way?" asked Tristan. "Because it will improve our profits, before income taxes, by $150,000 over the next decade," replied Fister. "But it just doesn't seem right," commented Tristan. 99 Required How does the accounting analysis by Fister improve profits before income taxes by $150,000 а. over the next decade? b. Is the goal of improving profits a sufficient rationale to defend the accounting analysis by Fister? 2 Do you agree with Fister's analysis? Briefly explain. What actions are available to Tristan to resolve her concerns with Fister's analysis? с. d. Corporate Social Responsibility Problem Unlike Tesla Motors' emphasis on electric engines, Cummins, Inc. is best known for its design and manufacturing of diesel engines. Go to the Cum- and navigate to the section on sustainability.

fullscreen
check_circle

Expert Answer

Step 1

a)

help_outline

Image Transcriptionclose

In this case, Person F (The controller of Incorporation G) made an accounting analysis for the purchase of land and building, which states that the value of land ($1,350,000) should be thrice the value of building ($450,000). However, according to the appraisal made by both the buyer (Incorporation G) and seller (Corporation H), the land should be valued ($1,200,000) twice the value of building ($600,000). Person F made this accounting analysis because when the value of building gets decreases, the depreciation expenses also get decreases; this in turn will increase the net profit of the company. Thus, Person F by increasing the value of land by thrice the value of building improves the profits before income taxes by $150,000 over the next decade. Working note: Net profit (Increase) Depreciation expense x Estimated life = $15, 000 x 10 - $150, 000 Actua lu building Salvage value Stated value of building depreciationexpense Estimated life $600,000-$450,000 10 = $15,000

fullscreen
Step 2

b)

 

help_outline

Image Transcriptionclose

No, improving the net profit alone is not sufficient rationale to defend the accounting analysis. In order to have sufficient rationale, a company should have lower debt and higher total assets to defend the accounting analysis.

fullscreen
Step 3

c)

 

...
help_outline

Image Transcriptionclose

No, Person F's accounting analysis of valuing the land ($1,350,000) thrice the value of building ($450,000) is unethical and illegal. This is because, when the value of building gets decreases, the depreciation expenses also get decreases; this in turn will increase the net profit of the company. Thus, this gives the public an unfair and misrepresentation of the financial statement

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Financial Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Wendy has $8,000.00 invested in a bank that pays 13.75% annually. How long will it take for her fund...

A: In compound interest, the amount of interest received will be added to the principle  every year and...

question_answer

Q: Abel's employer provides Abel with a group life insurance benefit. Abel irrevocably transferred the ...

A: Group life insurance is usually offered by an employer or other large-scale entity to its exisitng w...

question_answer

Q: On November 1, 20Y9, Lexi Martin established an interior decorating business, Heritage Designs. Duri...

A: Click to see the answer

question_answer

Q: Len Gary started his own consulting firm, Gary Consulting, on June 1, 2022. The trial balance at Jun...

A: Adjustment entries: Adjusting entries are those entries which are made at the end of the year  to up...

question_answer

Q: 192 CHAPTER 4 Use the following data for the next 4 questions: Shown below is an adjusted trial bala...

A: The income statement is a financial statement that represents the financial performance of the compa...

question_answer

Q: Following is the chart of accounts of Elden Realty Company: Assets Revenue 111 Cash 411 Profess...

A: 1. Prepare the journal entries for the month of April.(April 1 to April 15). 

question_answer

Q: Marley Company has the following information for March: Sales $912,000 Variable cost of goods sold 4...

A: Manufacturing margin is computed by subtracting the total manufacturing costs( fixed and variable ) ...

question_answer

Q: Following are the accounts and balances (in random order) from the adjusted trial balance of Stark C...

A: 1. Income statement:

question_answer

Q: I could use some help with (d) (at the bottom) on this.   Porter Corporation has just hired Bill Har...

A: Comparison between Actual and budgeted