Business/Professional Ethics Directors/Executives/Acct
8th Edition
ISBN: 9781337485913
Author: BROOKS
Publisher: Cengage
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If the company decides to purchase the new equipment for Larson, a mistake has been made somewhere, because equipment bought only two years ago is being scrapped. How did this mistake take place?
We examine what might happen in the worst-case scenario, but the true worst case would involve a total disaster with extremely remote probability. We certainly would like to prepare ourselves for the worst possible outcome, but shall we make decisions based on something that is extremely unlikely to happen? Consider Samsung’s recent experience. Samsung was forced to recall 2.5million Galaxy Note 7 smartphones just one month after it was introduced because multiple reports on the phones caught fire, and eventually stopped all production in the following month. Some estimated that Samsung incurred a $5 billion write-off due to this fiasco.
Would you consider it Samsung’s failure not to prepare for this worst-case scenario? Why or why not?
As a member of Samsung’s FP&A team, what would you do differently for evaluating future products?
Motorola is a world leader in the development of cellular phone technology. During the year, the company becomes aware of potential costs due to (1) a product defect that is reasonably possible and is reasonably estimable, (2) a safety hazard that is probable and cannot be reasonably estimated, and (3) a new product warranty that is probable and can be reasonably estimated. Which of these potential costs, if any, should Motorola record?
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- A furniture company ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the receiving department at the furniture company accepted the tables. The invoice was eventually received but was for the original 84 tables. The furniture companypaid the entire amount. Which of the following controls would have been least likely to have prevented this erroneous payment?a. The copy of the purchase order sent to the furniture company’s receiving department should not have shown an expected quantity.b. Personnel in the furniture company’s accounts payable department should compare the receiving report to the purchase invoice before creation of the voucher. c. Personnel in the furniture company’s cash disbursements department should compare the check that is prepared to all of the backup documentation.d. Personnel in the furniture company’s purchasing department should compare the purchase requisition with the purchase orderarrow_forwardConsultants notified management of Goo Goo Baby Products that a crib toy poses a potential health hazard.Counsel indicated that a product recall is probable and is estimated to cost the company $5.5 million. How willthis affect the company’s income statement and balance sheet this period?arrow_forward33. Unable to rely solely on its own factories, toy company PlayGo contracts with foreign-owned manufacturers. Despite its requirement that factories use materials provided by certified suppliers, a foreign manufacturer uses lead paint and PlayGo issues a recall. What are the two most effective strategies to limit PlayGo’s reputational damage and reduce the likelihood of future product defects? I. Participating in a highly publicized initiative by the Toy Industry Association and Consumer Product Safety Commission to introduce new regulations requiring more stringent safety checks. II. Issuing a statement that the toys were made in factories in a foreign country, and that PlayGo had met its risk management responsibilities by issuing the requirement that contractors use the material provided by certified suppliers. III. Reducing the number of toys it makes through contract factories. IV. Refining further its memoranda of understanding with contractors and partners to include stricter…arrow_forward
- A writ was lodged in the Supreme Court in the week after year-end claiming damages forillness allegedly caused by chemicals used at a subsidiary company’s manufacturing plant inthe 1990s. This is the tenth such writ lodged, and the client has denied responsibility in allcases because it was unreasonable to believe at that time that these chemicals had adversehealth effects. The claimant has new scientific evidence that counters this defence. Which subsequent event is this and what is the treatment for this?arrow_forwardRandwick Medical Laboratory Ltd, RMLL, a medical research entity, has discovered a cure for a previously incurable disease. RMLL is protecting the drug’s formula by keeping it secure in the company vault, rather than by patenting it. RMLL shortly plans to start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. Being the first of its kind and, therefore, unique, RMLL has no idea as to the formula’s value. Costs incurred to date in developing the formula are impossible to identify, given that the cure was discovered as a by-product of another research project. Required Outline how RMLL should account for the formula, justifying your answer by reference to relevant definitions and recognition criteria.arrow_forwardWhich of the following is an example of non-diversifiable risk? a)Risk of product recall b)Airport employees go on strike c)Pipe explosion at an oil gas refinery d)Inflationary pressurearrow_forward
- SENE ELL Co. recently recalled 6 million cars due to faulty third-party ignition switches that were linked to 13 deaths. For more than a decade, the company decided against a very inexpensive switch upgrade and continued to use the vendor’s ignition switches even though they did not meet the company’s performance specifications. A growing number of lawsuits ensued and company’s stock sank due to heavy media attention, congressional inquiries, and a Department of Justice criminal investigation. The most significant risk management lesson to date from the company recall is: CHOICES: A) An organization that ignores or mistreats its external stakeholders does so at its own peril. B) The Company failed to develop an ethical organizational culture that guided its strategic planning and daily operations. C) Cost-benefit analysis is an ineffective decision-making technique, as demonstrated in rejecting a 57-cent fix for the ignition switches. D) Reliance upon third-party vendors results…arrow_forwardSRJ Bhd (SRJ) has two divisions in two different business segments. The first division is in the medical devices manufacturing business. In July 2020, the company was presented with a lawsuit by a group of customers. The customers claimed that SRJ has provided them with inaccurate blood glucose readers that have jeopardised their health and life. Based on the evidence and advice by the company’s legal team, it is possible for SRJ to lose the lawsuit. However, until the end of December 2020, the timing and amount of the lawsuit is yet to be estimated. The next proceeding shall be proceeded in the year 2021. The second division of SRJ is located in country B. The main business activity of this division is producing manual transmission for car industry. However, due to changes of consumers’ preference toward automatic transmission car and lack of demand on manual transmission vehicles, the company is planning to close the division to avoid future losses. The board of directors has…arrow_forwardIn a strategy meeting, the computer manufacturing company's president said, "If we raised the price of our product, the company's break-even point will be lower." The financial vice president responded by saying, "The company will also be less likely to incur a loss." As a management accountant would you agree or disagree with these statements and why?arrow_forward
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