202589-10-60P

AID: 7725 | 12/06/2015

(1)
Yes, Company WWC will meet its profitability goal for the year. The goal set by CEO
was to achieve a return on stockholders equity was of 25% (net income/shareholders
equity).
Net Income
= 25%
Shareholders Equity
$38 Million
= 25%
Shareholders Equity
Shareholders Equity $152, 000

So as per the above computation, shareholder's equity should be $152 million to

achieve the goal.
The value of total assets is $325 million, hence shareholder's equity may be of $152
million and hence the goal set by CEO can be achieved.
(2) Analysis regarding the profitability goal of WWC:
(a) Research and development cost in 2015 is $6 million (18million 3years). Written
of cost is $3 million. The total research and development cost in 2015 is $9 million.
Since research and development cost falls in non-operating cost, hence it will reduce
Net Income by $9 million.
(b) It is given that during a year a building was acquired in exchange for 5 million
shares with value of $3 per share. Thus, shares of total value of $15 million were
exchanged for building acquisition. It will increase value of total assets by $27 million
and decrease shareholder's equity by $15 million.
(c) Expenses will increase by $1 million.
Calculate Interest amount on equipment:
PRT
100
24128
=
100
= $23.04 Million

Interest =

Calculate Interest per year:

Interest
No.of Years
23,040
=
8
= $2.88 Million

Interest per year =

Adjustments of items a) through (d) are:

The effect of the adjustment of items (a) through (d) will affect various accounts as
below:

Net Income

Beginning
balance
$38 million

Total assets

$325 million

Particulars

Increase

Decrease
$9 million

Total liabilities

Shareholder's equity

$27 million
$180 million $1 million
$2.88million
$7 million

Ending
balance
$47 million
$352 million

$190.88 million
$15million

Hence, after adjustments, net income is increased and shareholder's equity is

decreased, thus the company will meet its profitability goal.
(3).
To prevent accounting abuses like those described above there is a need of
maintaining the difference between total assets and total liabilities. Here total assets
are increasing, so instead of purchasing more assets on certain interest, company can
clear its old debts with that amount so that interest capitalized during year can be
reduced and hence net income will be more resulting in more profitability.