How much cash inflow did this transaction create for MicroDex

Read the case first and answer the question!

Question 1. Assuming Peter Nelson LLP owed a duty of care to the Bank of Business Solutions, did Peter Nelson, LLP breach that duty of care?

In determining whether breach occurred, make sure to perform the following accounting analysis:

a. Recreate the journal entry that MicroDex made when it sold the stock to Greenco. How much gain was recognized on the sale of the stock? How much cash inflow did this transaction create for MicroDex?

b. Calculate the present value of the note receivable using a 15% interest rate.  Using the present value of the note as the only economic benefit received, recalculate the gain or loss on the transaction.

Question 2. Assume Peter Nelson LLP breached the duty of care owed to the Bank of Business Solutions. Were the damages sustained by the Bank of Business Solutions caused by Peter Nelson’s breach of the duty of care? In answering this question do the following:

(a) correct the 2004 income statement using the analysis in question 2 above;

(b) perform ratio analysis on the four year’s income (as originally stated and then after your corrections in requirement a) to determine if the firm actually had a pattern of income stability. Calculate standard profitability ratios (Return on Sales, Gross Profit Margin, Earnings per share, plus any other analysis you wish to perform.)

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