Financial Accounting

Exhibit 1-Excerpts from RISC Contract

1.0         Parties Thereto

This contract is entered into between Brotonne Inc. (Customer) and Riose Industrial Services Corp. (RISC) as of December 1, Year 17.

 

2.0         Services

RISC shall provide certain industrial waste management, removal, and treatment services to Customer as set forth in detail in Exhibit A to this agreement, for Customer's manufacturing facility located in Buffalo, N.Y.

 

3.0         Term

The Term of this agreement shall be for three (3) years, commencing as of the date of this agreement as specified in section 1.0, unless terminated in accordance with section 9.0.

 

-------/-------

 

5.0         Fees and Payment

The fees for Services rendered under this agreement shall be $10,000 per month for the Term of this contract.

Customer agrees to make payments to RISC on a monthly basis, and each monthly payment shall be due on the first business day of the calendar month to which it relates.

 

-------/-------

 

9.0         Termination

This contract may be terminated by Customer by providing 60 days' advance written notice to RISC. 

In such event, Customer shall remain obligated to make the next two regularly scheduled monthly payments to RISC following the date of notice, and RISC shall continue to provide Services to Customer in the normal course of business for the next two full calendar months following the date of notice. Such period of time from the date of notice through the end of the second full calendar month shall be referred to as the "Wind-Down Period."

Additionally, in the event of the early termination of this contract, Customer agrees to make a lump-sum termination payment to RISC at the end of the Wind-Down Period equal to 20 percent of any remaining unpaid service fees based on the original contract term as specified in section 3.0.

Exhibit 2- Executive Memorandum

Executive Summary

 

Brotonne Inc.

Subject:	N.Y. Facility Shutdowns
Date:	January 10, Year 20

 

The purpose of this memo is to document the key dates of management's actions and communications regarding the shutdown of the Buffalo, N.Y., and Watertown, N.Y., facilities.

· Month of October, Year 19—Senior management prepares and explores multiple plans to cut costs and restructure its operations.

 

Buffalo, N..Y

· November 14, Year 19—Board of directors approves Plan 3-B, under which the Buffalo, N.Y., facility will be shut down during Year 20, and subsequently sold, along with all associated equipment.

· December 16, Year 19—Senior management and Human Resources meet with all employees and communicate details of the Plan to the employees. Notification letters are provided to employees at this time. All employees' employment will terminate with the shutdown of the facility in Year 20, as identified in the Plan.

· December 17, Year 19—Management provides written notice to Falcon-Hawk Services LLC regarding Brotonne Inc.'s intent to terminate the service contract for site management and security services in place for the Buffalo facility as of February 28, Year 20.

· December 23, Year 19—Management provides written notice to Riose Industrial Services Corp. regarding Brotonne Inc.'s intent to terminate the service contract in place for the Buffalo facility as of February 28, Year 20.

· December 30, Year 19—Senior management met with the company's legal counsel and sale broker to identify any potential indicators of significant change needed to Plan 3-B to execute the shutdown. No indicators were noted.

· February 27, Year 20—Last day of production and operation at the Buffalo facility.

· February 28, Year 20—Buffalo facility will be shut down and closed. Brotonne will cease usage of and access to the facility by 7:00 p.m. EST.

· November 15, Year 20—Buffalo facility will be sold to a third party.

 

Watertown, N.Y.

· December 3, Year 19—Board of directors approves Plan 3-C, under which the Watertown, N.Y., facility will be shut down during Year 20. The company does not own property, plant, or equipment at the Watertown facility. All leases are operating leases that will terminate on June 30, Year 20, without penalty.

· December 15, Year 19—Senior management and Human Resources meet with the plant controller, Yasmina Jass, to inform her of the closing of the facility. Management and the controller sign an agreement whereby the controller will be relocated to the Norwalk, Conn., facility effective July 21, Year 20. The meeting is confidential and meeting participants are instructed not to discuss the planned shutdown with other employees before the company makes a formal announcement.

· December 17, Year 19—Management provides written notice to Falcon-Hawk Services LLC regarding Brotonne Inc.'s intent to terminate the service contract for site management and security services in place for the Watertown facility as of December 20, Year 19.

· December 21, Year 19—The company ceases using the services provided by Falcon-Hawk Services LLC under the Watertown service agreement.

· December 30, Year 19—Senior management met with the company's legal counsel and sale broker to identify any potential indicators of significant change needed to Plan 3-C to execute the shutdown. No indicators were noted.

· January 7, Year 20—Senior management and Human Resources meet with all employees and communicate details of the Plan to them. Notification letters are provided to employees at this time. The employees' employment will terminate with the shutdown of the facility in Year 20, except for the plant controller.

· June 15, Year 20—Last day of production and operation at the Watertown facility.

· June 30, Year 20—Watertown facility will be shut down and closed. Brotonne will cease usage of and access to the facility at 7:00 p.m. EST.

Exhibit 3

BUFFALO, N.Y.
	Employee  ID Number	Employee  Last Name	Employee First Initial	Hire Date	Annual  Salary		Hourly  Pay  Rate
	1170	Edwards	C.	July 14, Year 4	$104,000
	1204	Smith	B.	March 28, Year 5			$40.00
	1347	Jones	M.	July 12, Year 7			$36.00
	1514	Brown	A.	March 16, Year 10	$  65,000
	1561	Clark	Q.	Aug. 2, Year 11	$  78,000
	1772	Ramirez	S.	June 9, Year 15			$26.00
	1849	Washington	A.	Dec. 5, Year 18			$24.00
		Note: All employees work a full-time work week of 40 hours.

 

WATERTOWN, N.Y.
	Employee  ID Number	Employee  Last Name	Employee First Initial	Hire Date	Annual  Salary	Hourly  Pay  Rate
	8170	Jamison	A.	July 10, Year 3	$100,000
	8334	Kendall	L.	March 30, Year 5		$43.00
	8220	Cleo	K.	July 8, Year 8		$39.00
	8109	Rich	N.	March 1, Year 10	$  85,000
	8721	Rodriguez	R.	Aug. 2, Year 11	$123,000
	8118	Tamaren	Y.	June 3, Year 17		$38.00
	8007	Milie	C.	Dec. 4, Year 17		$28.00
	Note: All employees work a full-time work week of 40 hours.

Exhibit 4

Date ____________

 

Brotonne Inc. 183 Archeron Street Norwalk, Conn., 11111

 

Re: Notice of shutdown of facility and employment separation

 

Dear ___________,

We regret to inform you that, due to the continuing decline in sales of our products, Brotonne Inc. will shut down and close operations at the _______, N.Y., facility on __________, Year 20 (the "shutdown date"). 

In accordance with the terms of the applicable plan as approved by the board of directors, on your last day of employment, you will receive a severance payment in the amount of (a) $1,000 (one thousand and 00/100 dollars) plus (b) the equivalent of one week of pay for each full year of service that you have completed working for Brotonne Inc. In your case, with ___ full years of employment, you will receive ___ weeks of severance pay at your normal salary/pay rate. 

We want you to know that this layoff is not a statement about the quality of your work, and the company appreciates your years of service.

Sincerely,

Spencer H. Trisdale

Spencer H. Trisdale Chief operating officer Brotonne Inc.

Exhibit 5

To:	Spencer H. Trisdale, chief operating officer, Brotonne Inc. <[email protected]>
From:	C.J. Clacklestone, general operations manager, Falcon-Hawk Services LLC <[email protected]>
Date:	December 31, Year 19, 1:55pm
Subject:	Facility closure and contractual agreement

 

Dear Mr. Trisdale,

We are in receipt of your letter dated December 17, Year 19, regarding your plans to close operations at your Buffalo, N.Y., facility and Watertown, N.Y., facility, and your desire to end each of the contracts in place with Falcon-Hawk Services LLC as of February 28, Year 20, and December 20, Year 19, respectively. 

However, per review of the agreements in place between our respective companies, there is no provision or clause within either the Buffalo or Watertown site agreement that allows for early termination before the specified end date of October 31, Year 20. As such, and based on consultation with our legal counsel, you are contractually obligated to continue paying monthly fees of $2,500 per month for each facility through the remaining term of the contract, just as we are contractually obligated to continue to provide site management, logistics, and security monitoring services to you for the remaining term of the contract (regardless of the level of operating activity at your facility).

Under the terms of the agreements, payments shall continue to be due the 1st of each month (i.e., a payment made January 1  shall relate to the fee for January service) and shall be payable in full whether services are provided for the full month or a partial month).

That being said, we are willing to consider making some sort of reasonable accommodation in light of the current situation. Please let me know when you have availability next week for a teleconference to discuss this matter further. 

Sincerely,

C. J. Clacklestone General manager Falcon-Hawk Services LLC

Exhibit 6

Brotonne INC.
Plant:	008
Location:	Buffalo, N.Y.

 

Asset Tag	Asset Description	Asset Class	Placed in Service	Cost Basis (Net of Salvage Value, if Any)	Accumulated Depreciation at 12/31/Y19	Estimated Useful Life
BUF-LB-001	Lot No. 749, tax parcel 263-020-C	Land	January 1, Year 1	$340,000	-	N/A
BUF-LB-002	Main Building, construction cost	Buildings	September 30, Year 1	$399,997	$182,499	40
BUF-LB-003	Main Building, additional construction costs	Buildings	September 30, Year 1	$105,241	$  48,016	40
BUF-LB-004	Building 2, construction cost	Buildings	September 30, Year 1	$126,863	$  57,881	40
BUF-LB-005	Building 3, construction cost	Buildings	September 30, Year 1	$127,018	$  57,952	40
BUF-LB-006	Parking lot—landscaping and paving	Buildings	June 30, Year 1	$  20,082	$    9,288	40
BUF-LB-007	Gate house and fences	Buildings	September 30, Year 1	$  69,144	$  31,547	40
BUF-LB-008	Tool shed	Buildings	September 30, Year 1	$  11,655	$    5,318	40
BUF-LB-009	Western expansion to Main Building	Buildings	June 30, Year 7	$150,150	$  46,922	40
BUF-EQ-PL1-0001	Mechanical stamper	Equipment	September 30, Year 1	$  24,980	$  22,794	20
BUF-EQ-PL2-0001	Heavy mechanical stamper	Equipment	September 30, Year 1	$  44,661	$  40,753	20
BUF-EQ-PL1-0102	Conveyor systems	Equipment	November 1, Year 12	$  12,786	$    9,163	10
BUF-EQ-PL2-0377	Thermal press	Equipment	February 14, Year 13	$  18,905	$  13,008	10
BUF-EQ-PL2-0012	Conveyor systems for Building 2	Equipment	November 1, Year 12	$    9,422	$    6,752	10
BUF-EQ-PL1-0522	Sonic stabilizer	Equipment	November 24, Year 16	$    7,854	$    2,437	10
BUF-EQ-PL2-1985	Flux capacitor	Equipment	October 21, Year 15	$  10,121	$    4,245	10
BUF-EQ-PL1-0008	Oscillation overthruster	Equipment	August 10, Year 14	$    5,673	$    3,059	10
BUF-EQ-PL2-1701	Intermix chamber	Equipment	September 8, Year 16	$    7,965	$    2,640	10
BUF-EQ-GP-0242	Tables and chair sets for break room	Equipment	May 31, Year 16	$    5,007	$    2,563	7
BUF-EQ-GP-0211	Computer systems for Main Building	Equipment	January 15, Year 15	$    9,582	$    9,507	5
BUF-EQ-GP-0213	Computers for Building 2 and Building 3	Equipment	January 27, Year 16	$    6,548	$    5,144	5
BUF-EQ-PL3-1001	Mechanical stamper—Western expansion	Equipment	June 30, Year 7	$  27,004	$  16,878	20
BUF-EQ-GP-0263	Forklift, model Y250-S	Equipment	April 30, Year 17	$  19,133	$  10,204	5
BUF-EQ-GP-0264	Forklift, model Y250-S	Equipment	April 30, Year 17	$  19,133	$  10,204	5

 

Exhibit 7

Date:	January 2, Year 20
Regarding:	Yasmina Jass relocation

 

As part of the agreement signed by management and Ms. Jass, she will be relocated from the Watertown, N.Y., facility to the Norwalk, Conn., facility effective July 21, Year 20.

We have agreed to pay for and/or reimburse Ms. Jass for the costs of relocation, including costs to move her household effects, costs of house-hunting trips, and closing costs on the sale and/or purchase of a house, up to a total of $50,000.

· We signed a contract on December 28, Year 19, with an interstate moving company to relocate Ms. Jass' household effects from Watertown, N.Y., to Norwalk, Conn., in Year 20. The estimated cost for this move is expected to be $9,500, and a nonrefundable deposit of $1,000 was due upon signing. Accounts Payable will process the payment for the deposit with its next check run on January 4.

· Ms. Jass made a house-hunting trip to Norwalk during the week of December 22–29, Year 19. She has provided us with receipts for transportation costs, hotel lodging, and engaging a broker, totaling $1,492.

· Based on other employee relocations we have done in the past, we expect that, if Ms. Jass sells her current home, the closing costs on the sale will be approximately $7,500.

· Based on the current cost of housing in Norwalk, if Ms. Jass purchases a new home in Norwalk (rather than renting an apartment), her closing costs are estimated to be approximately $25,000.

Brotonne Inc. is a Delaware corporation in the business of manufacturing engravable metal pet identification collar tags, with multiple facilities located throughout the northeastern United States. Over the past five years, Brotonne Inc.'s profits have steadily declined as consumer preferences have shifted away from Brotonne's products in favor of Bluetooth smart pet-tag products. 

Management has begun initiatives to turn the company around, including restructuring operations and targeted cost reductions. As a result, Brotonne will be shutting down its facilities in Buffalo, N.Y., and Watertown, N.Y. At the company's fiscal year-end, 12/31/Y19, Brotonne's senior accountant must determine the impact of Brotonne's planned facility disposals on the company's financial statements (assume that no entries have yet been recorded for December Year 19). Management has determined that the shutdowns do not qualify as discontinued operations.

Using the exhibits, determine the amount of liabilities arising from exit costs that Brotonne should accrue at 12/31/Y19 related to each shutdown. In column C, enter the amount of the accrual associated with the item listed in column B for the facility shown in column A. Round answers to the nearest whole dollar. Enter amounts that increase the company's liabilities as positive numbers (credits). Enter amounts that decrease the company's liabilities as negative numbers (debits). If a value is zero, enter a zero (0). Assume any present value implications to be immaterial and that Brotonne will not, under its accounting policy, include a time-value adjustment for immaterial amounts at 12/31/Y19.

	A	B	C
1	N.Y. Facility	Accrued exit cost liability 12/21/Y19	(Dr.)/ Credit Amount
2	Buffalo
3	Watertown
4	Buffalo
5	Buffalo
6	Buffalo
7	Watertown
8	Watertown
9	Total Accrued exit	Cost at 12/21/Y19

On January 1, Year 4, Hodgskin Bakeries, a producer and wholesaler of baked goods, invested in Howell Distributors, a seller of baking spices, such as cinnamon, allspice, and nutmeg. As an accountant on the consolidations team in the corporate offices of Hodgskin Bakeries, you are responsible for preparing the journal entries related to Hodgskin's investment in Howell following the company's year-end of December 31, Year 4. Both Hodgskin's and Howell's fiscal year-end is December 31.

Using the exhibits and transaction information provided, prepare the Year 4 journal entries for the investment in Howell as of year-end.

To prepare each required journal entry:

· Find the Account Name column and select the appropriate account. An account may be used once or not at all for a journal entry.

· Enter the corresponding debit or credit amount in the associated column.

· If no journal entry is needed, check the "No Entry Required" box at the top of the table as your response.

1. 1. Record Hodgskin's initial investment in Howell Corp.

Account Name	Debit	Credit

2. Recognize Hodgskin Co.'s net income (loss) in Howell Corp.

Account Name	Debit	Credit

3.Record amortization of investment premium for undervalued equipment (premium excludes goodwill).

Account Name	Debit	Credit

4. 4. Record dividend paid by Howell Corp. to common shareholders.

Account Name	Debit	Credit

EXHIBIT 1

From:	[email protected]
To:	[email protected]
Sent:	January 2, Year 5
Subject:	Howell Distributors Transactions

 

Hi Leary, As you prepare the journal entries related to our investment in Howell Distributors, please be sure to check that all investee activity for the year is included and that all amounts within the entries are correct. To facilitate your preparation, I've pulled together the following summary of transactions for our investment in Howell, for which you will need to ensure that all associated investment activity is reflected in the entries you prepare.

EXHIBIT 2

Howell Distributors
Income Statement
		Year 4
Net sales revenue	$  3,000,000
Cost of goods sold	(1,750,000)
Gross profit	1,250,000
SG&A expenses	(1,050,000)
Income from operations	200,000
Other revenues/gains (expenses/losses)	(75,000)
Income (loss) before taxes	125,000
Income tax expense	(25,000)
Net income (loss)	$     100,000

EXHIBIT 3

From: [email protected] To: [email protected]       Sent: January 5, Year 5 Subject: Common stock dividends   Hi Leary! Sorry for the delay in my response regarding the common stock dividend question. We had the chance to go skiing last weekend and just returned from Colorado. It is taking me awhile to get back in the swing of things! Ashley asked me to forward information on the common stock dividends paid last year. On December 31, Howell declared and paid $28,000 in dividends to our common stock shareholders. The dividends were paid to our common shareholders via ACH transaction on the 31st and you should see this activity on your operating bank statement for December when received this month. If you need more information, please let me know. I will provide a quick turnaround to any questions.  Have a great afternoon! Cecilia

EXHIBIT 4

Howell Distributors
Balance Sheet
Year 4
Below are excerpts from the Stockholders' Equity section of Howell Distributors' balance sheet:
Capital stock
	Preferred stock, $100 par value, 5% cumulative, 5,000 shares authorized,     1,000 shares issued and outstanding	$    100,000
	Common stock, $1 par value, 500,000 shares authorized, 350,000 shares     issued and outstanding	350,000
	Additional paid-in capital	225,000
Total capital stock	$675,000