In a Rush to Complete Its Purchase of Health Software

question 14

Essay

In a rush to complete its purchase of health software producer HBO, McKesson did not perform adequate due diligence but rather relied on representations and warranties in the agreement of sale and purchase. Within six months following closing, McKesson announced that it would have to reduce revenue by $327 million and net income by $191.5 million for the past 3 fiscal years to correct for accounting irregularities. The company's stock fell by 48 percent. Assume HBO's financial statements had been declared to be in accordance with GAAP, would McKesson have been justified in believing that HBO's revenue and profit figures were 100 percent accurate?

Understand the concept of transferred-in costs in process costing.

Identify the flow of costs in a process costing environment including the "cost to be accounted for" and the distribution of costs.

Analyze the impact of beginning work in process inventory and ending work in process inventory on process costing calculations.

Distinguish between situations appropriate for process costing and job order costing.

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Definitions:

Law

A system of rules created and enforced through social or governmental institutions to regulate behavior.

Drug Therapy

The treatment of diseases or conditions with pharmaceutical drugs.

Cognitive Therapy

A form of psychotherapy that focuses on changing unhelpful or destructive thought patterns to improve mood and behavior.

Sharp Reduction

A significant and rapid decrease in size, amount, or rate.