Question & Answer

What are the major limitations of the balance sheet as a source of information?

Explain how margin requirements can affect the potential return and risk from investing in a stock. What is the maintenance margin? (LO1)

What is meant by the ‘steady-state economic growth path’? What determines its slope?

Presented below is information related to Viel Company at December 31, 2014, the end of its first year of operations. Sales revenue $310,000 Cost of goods sold 140,000 Selling and administrative expenses 50,000 Gain on sale of plant assets 30,000 Unrealized gain on non-trading equity securities 10,000 Interest expense 6,000 Loss on discontinued operations 12,000 Allocation to non-controlling interest 40,000 Dividends declared and paid 5,000 Instructions Compute the following: (a) income from operations, (b) net income, (c) net income attributable to Viel Company controlling shareholders, (d) comprehensive income, and (e) retained earnings balance at December 31, 2014. (Ignore income taxes.)

Your client took accounting a number of years ago and was unaware of comprehensive income reporting. He is not convinced that any accounting standards exist for comprehensive income. Instructions Access the IFRS authoritative literature at the IASB website (http://www.iasb.org/ ). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.) (a) What IFRS addresses reporting in the statement of comprehensive income? When was it issued? (b) Provide the definition of total comprehensive income. (c) Explain the rationale for presenting additional line items, headings, and subtotals in the statement of comprehensive income. (d) What items of income or expense may be presented either in the statement of comprehensive income or in the notes?

The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://annualreport.marksandspencer.com/_assets/downloads/Marks-and- Spencer-Annual-report-and-financial-statements-2012.pdf. Instructions Refer to M&S’s financial statements and the accompanying notes to answer the following questions. (a) What type of income statement format does M&S use? Indicate why this format might be used to present income statement information. (b) What are M&S’s primary revenue sources? (c) Compute M&S’s gross profit for each of the years 2011 and 2012. Explain why gross profit increased in 2012. (d) Why does M&S make a distinction between operating and non-operating profit? (e) Does M&S report any non-GAAP measures? Explain.

Balanced scorecard measures for customer perspective Leyland College is in the process of developing a balanced scorecard. The administrators decided that their customers are parents and future employers of their students. They believe the students are their products.   Required Discuss whether each of the following potential measures would be useful for the customer perspective in the balanced scorecard. (a)     Parent ratings of satisfaction with the high school curriculum (b)     Graduation rate (c)     Percentage of students employed during the summer after graduation (d)     Employer satisfaction ratings for Flowing Wells High School graduates (e)     Monthly earnings of graduates (f)      Number of graduates attending classes beyond high school (g)     Cost per student per year (h)     Number of classes per student per semester (i)      Average number of college credit hours completed per teacher

On a diagram like Figure A1.8 draw the graphs for the following equations:                      y = –3 + 4x                      y = 15 – 3x

Describe the reporting of pension plans for a company with multiple plans, some of which are underfunded and some of which are overfunded.

As a newly enrolled accounting major, you are anxious to better understand accounting institutions and sources of accounting literature. As a first step, you decide to explore the FASB Conceptual Framework. Instructions Go to the FASB website, http://www.fasb.org, to access the FASB Concepts Statements. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) What is the objective of financial reporting? (b) What other means are there of communicating information, besides financial statements? (c) Indicate some of the users and the information they are most directly concerned with in economic decision-making.

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www. wiley.com/college/kieso. Instructions Refer to these financial statements and the accompanying notes to answer the following questions. (a) What were P&G’s total assets at June 30, 2011? At June 30, 2010? (b) How much cash (and cash equivalents) did P&G have on June 30, 2011? (c) What were P&G’s research and development costs in 2010? In 2011? (d) What were P&G’s revenues in 2010? In 2011? (e) Using P&G’s financial statements and related notes, identify items that may result in adjusting entries for deferrals and accruals. (f) What were the amounts of P&G’s depreciation and amortization expense in 2009, 2010, and 2011?

Dan has AGI of $50,000 and paid the following taxes during this tax year. Calculate how much Dan can deduct for taxes as an itemized deduction this year.

What are the three committees that debate proposed tax legislation?  What documents do these committees generate, and how might they be used?

Discuss the method used to determine the amount of organizational expenditures or start-up costs that may be immediately expensed in the year a taxpayer begins business.

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statements, can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the accompanying notes to answer the following questions. (a) What type of income statement format does P&G use? Indicate why this format might be used to present income statement information. (b) What are P&G’s primary revenue sources? (c) Compute P&G’s gross profit for each of the years 2009–2011. Explain why gross profit decreased in 2011. (d) Why does P&G make a distinction between operating and nonoperating revenue? (e) What financial ratios did P&G choose to report in its “Financial Summary” section covering the years 2001–2011?

An extrusion operation is used to produce a parison whose mean diameter = 27 mm. The inside and outside diameters of the die that produced the parison are 18 mm and 22 mm, respectively. If the minimum wall thickness of the blow-molded container is to be 0.40 mm, what is the maximum possible diameter of the blow mold?

Tomiko is a 50 percent owner (partner) in the Tanaka partnership. During the year, the partnership reported $1,000 of interest income and $2,000 of dividends. How much of this income must Tomiko include in their gross income?

How are small and medium-sized finance companies able to issue commercial paper? Why do some well-known finance companies directly place their commercial paper? (LO2)

What is the difference between the Codification and theCodification Research System?

Charles has AGI of $50,000 and has made the following payments related to (1) land he inherited from his deceased aunt and (2) a personal vacation taken last year. Calculate the amount of taxes Charles may include in his itemized deductions for the year under the following circumstances:

Suppose in Example 30.3 in the text that the fuel used in the welding operation is MAPP instead of acetylene, and the proportion of heat concentrated in the 9 mm circle is 60% instead of 75 %. Compute (a) rate of heat liberated during combustion, (b) rate of heat transferred to the work surface, and (c) average power density in the circular area.

Jorge contributed land he held as an investment (fair market value $120,000; basis $55,000) and inventory (fair market value $80,000; basis $75,000) to ABC Corporation in exchange for 50 percent of the ABC stock (50 shares valued at $160,000) and $40,000 cash in a qualifying §351 exchange.   a. What amount of gain does Jorge recognize on the exchange? What is the character of the gain? What would be Jorge's tax basis in his ABC stock after the exchange? b. Assume the same facts except that Jorge received $40,000 of business property from ABC instead of $40,000 cash. What are the amount and character of gain Jorge would recognize on the exchange? c. Assume the original facts in this problem except that the inventory had a tax basis of $90,000 so that Jorge realized a $10,000 loss on the inventory (he still realized a $65,000 gain on the land). How much gain or loss would he recognize on the exchange?

Hardly a day goes by without an article appearing on the crises affecting many of our financial institutions in the United States. It is estimated that the savings and loan (S&L) debacle of the 1980s, for example, ended up costing $500 billion ($2,000 for every man, woman, and child in the United States). Some argue that if the S&Ls had been required to report their investments at fair value instead of cost, large losses would have been reported earlier, which would have signaled regulators to close those S&Ls and, therefore, minimize the losses to U.S. taxpayers. Instructions Explain how reported accounting numbers might affect an individual’s perceptions and actions. Cite two examples.

What is the objective of financial reporting?

Alvarado Company sells a machine for $7,400 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2014 (warranty expense is incurred half in 2014 and half in 2015). As a result of product testing, the company estimates that the warranty cost is $390 per machine ($170 parts and $220 labor). Instructions Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts? (a) Under application of the expense warranty accrual method for: (1) Sale of machinery in 2014. (2) Warranty costs incurred in 2014. (3) Warranty expense charged against 2014 revenues. (4) Warranty costs incurred in 2015. (b) Under application of the cash-basis method for: (1) Sale of machinery in 2014. (2) Warranty costs incurred in 2014. (3) Warranty expense charged against 2014 revenues. (4) Warranty costs incurred in 2015. (c) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2014, under each method? (d) Which method best reflects the income in 2014 and 2015 of Alvarado Company? Why?