Home / Questions / Canada Steel Co produces steel casting and metal fabrications for sale to manufacturers of...
Canada Steel Co. produces steel casting and metal fabrications for sale to manufacturers of heavy construction machinery and agricultural equipment. Early in Year 3, the company's president sent the following memorandum to the financial vice president: TO: FROM: SUBJECT: Robert Kinkaid, Financial Vice President Richard Johnson, President Accounting and Financial Policies Fiscal Year 2 was a difficult year for us, and the recession is likely to continue into Year 3. While the entire industry is suffering we might be hurting our performance unnecessarily with accounting and business policies that are not appropriate. Specificaly (1) We depreciate most fixed assets (foundry equipment) over their estimated useful lives on the "tonnage- of-production" method. Accelerated methods and shorter lives are used for income tax purposes. A switch to straight-line for financial reporting purposes could (a) eliminate the deferred tax liability on our balance sheet, and (b) leverage our profits if business picks up in Year 4. (2) Several years ago you convinced me to change from the FIFO to LIFO inventory method. Since inflation is now down to a 4 percent annual rate, and balance sheet strength is important in our current environment, I estimate we can increase shareholders' equity by about $2.0 million, working capital by S4.0 million, an adjustment is real-these prbfits were earned by us over the past several years and should be recognized d Year 3 earnings by $0.5 million if we return to FIFO in Year 3. This (3) If we make the inventory change, our stock repurchase program can be continued. The same shareholder who sold us 50,000 shares last year at $100 per share would like to sell another 20,000 shares at the same price. However, to obtain additional bank financing, we must maintain the current ratio at 3:1 or better. It seems prudent to decrease our capitalization if return on assets is unsatisfactory and our industry is declining. Also, interest rates are lower (11 percent prime) and we can save $60,000 after taxes annually once our $3.00 per share dividend is resumed These actions would favorably affect our profitability and liquidity ratios as shown in the pro forma income statement and balance sheet data for Year 3 (S millions).
May 18 2020 View more View Less
Describing an Error The following argument. that . is incorrect. Describe the error.
Jul 28 2021Which of the following would not cause the market supply of cellphones to change?1)- Telecommunications are deregulated, and anyone who wants to can produce and sell cell...
May 09 2021Evaluating the prospect of entry, an entrant may fear that engaging in head to head competition post-entry with the incumbent may result in severe losses. Some companies ...
Dec 05 201918 A manager wishes to build a control chart for a process. A total of five (05) samples are collected with four (04) observations within each sample. The sample means (X...
Apr 30 2021Use Table 1, which shows Ben’s utility, to work Problems 3 and 4.3. Calculate the values of A, B, C, and D in the table. Does the principle of diminishing marginal utilit...
Jun 03 2020From this information, derive Bert's demand schedule. Graph his demand curve for bottled water.Value of first bottle $7Value of second bottle $5Value of third bottle $3Va...
Jul 12 2021As we are learning this week, environmental scanning is critical to understanding the internal impact of events occurring outside of the organization. Select one of the f...
Apr 08 2021True or False? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods generate supplies of foreign currencies.” Explain. Would a decline in ...
Dec 05 2019Show transcribed image textRonald Roth started his new job as controller with Aerosystems today. Carole, the employee benefits clerk, gave Ronald a packet that contains i...
Aug 17 2020When the price of a normal good falls,both the income and substitution effects combine to cause the quantity demanded to increasethe substitution effect will cause people...
May 11 2021