Business Management Paper

1) In a recent newspaper release, the president of Magnusson Company asserted that something has to be done about depreciation. The president said, “Depreciation does not come close to accumulating the cash needed to replace the asset at the end of its useful life.” What is your response to the president?

2) Accounting for debt is important in businesses. Understanding the accounting for current and long-term liabilities is important in understanding the solvency of a business. In this, you will look at how businesses finance operations through debt.

Rayborn Company obtains $20,000 in cash by signing a 9%, 6-month, $20,000 note payable to First Bank on July 1. Rayborn's fiscal year ends on September 30. What information should be reported for the note payable in the annual financial statements? What disclosure is required? Why is this important?

3) The R&D division of Pele Corp. has just developed a chemical for sterilizing the vicious Brazilian “killer bees” that are invading Mexico and the southern United States. The president of Pele is anxious to get the chemical on the market because Pele profits need a boost — and his job is in jeopardy because of decreasing sales and profits. Pele has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.

The director of Pele's R&D division strongly recommends further research in the laboratory to test the side effects of this chemical on other insects, birds, animals, plants, and even humans. He cautions the president, “We could be sued from all sides if the chemical has side effects that we didn't even test for in the lab.” The president answers, “We can't wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Pele Corp. from such lawsuits. We cannot lose any more than our investment in the new corporation, and we will invest just the patent covering this chemical. We'll reap the benefits if the chemical works and is safe and avoid the losses from lawsuits if it's a disaster.” The following week, Pele creates a new wholly owned corporation called Cabo Inc., sells the chemical patent to it for $10, and watches the spraying begin.

Who are the stakeholders in this situation? Are the president's motives and actions ethical?