Question & Answer

What is meant by a dilutive security?

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) How does P&G value its inventories? Which inventory costing method does P&G use as a basis for reporting its inventories? (b) How does P&G report its inventories in the balance sheet? In the notes to its financial statements, what three descriptions are used to classify its inventories? (c) What costs does P&G include in Inventory and Cost of Products Sold? (d) What was P&G’s inventory turnover in 2011? What is its gross profit percentage? Evaluate P&G’s inventory turnover and its gross profit percentage.

1.       : Imagine yourself as a potential member of a team responsible for designing a new package for a breakfast cereal. Do you think interpersonal skills would be equally important if the team is organized to interact on a face-to-face basis versus as a virtual team? Why or why not? Might different types of interpersonal skills be required for the two types of teams? Be specific.

What is meant by the terms narrow money and broad money? Does broad money fulfil all the functions of money?

Explain how the accounting method applied to mortgage-backed securities made it more difficult for banks to satisfy capital requirements during the credit crisis of 2008–2009. (LO2)

In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases. Cases 1 2 3 4 5 Cost $15.90 $16.10 $15.90 $15.90 $15.90 Sales price 14.80 19.20 15.20 10.40 17.80 Estimated cost to complete 1.50 1.90 1.65 .80 1.00 Estimated cost to sell .50 .70 .55 .40 .60

Jennings Inc. reported the following pretax income (loss) and related tax rates during the years 2010 2016. Pretax Income (loss) Tax Rate 2010 $ 40,000 30% 2011 25,000 30% 2012 50,000 30% 2013 80,000 40% 2014 (180,000) 45% 2015 70,000 40% 2016 100,000 35% Pretax financial income (loss) and taxable income (loss) were the same for all years since Jennings began business. The tax rates from 2013–2016 were enacted in 2013. Instructions (a) Prepare the journal entries for the years 2014–2016 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume that Jennings elects the carryback provision where possible and expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year. (b) Indicate the effect the 2014 entry(ies) has on the December 31, 2014, balance sheet. (c) Prepare the portion of the income statement, starting with “Operating loss before income taxes,” for 2014. (d) Prepare the portion of the income statement, starting with “Income before income taxes,” for 2015.

Clem is married and is a skilled carpenter. Clem’s wife, Wanda, works part-time as a substitute elementary school teacher. Determine the amount of Clem’s expenses that are deductible for AGI this year (if any) under the following independent circumstances:

Jones Co. is in a technology-intensive industry. Recently, one of its competitors introduced a new product with technology that might render obsolete some of Jones’s inventory. The accounting staff wants to follow the appropriate authoritative literature in determining the accounting for this significant market event. Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.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) Identify the authoritative literature addressing inventory pricing. (b) List three types of goods that are classified as inventory. What characteristic will automatically exclude an item from being classified as inventory? (c) Define “net realizable value” as used in the phrase “lower-of-cost-or-net realizable value.” (d) Explain when it is acceptable to state inventory above cost and which industries allow this practice.

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) How does M&S value its inventories? Which inventory costing method does M&S use as a basis for reporting its inventories? (b) How does M&S report its inventories in the statement of financial position? In the notes to its financial statements, what three descriptions are used to classify its inventories? (c) What costs does M&S include in Inventory and Cost of Sales? (d) What was M&S’s inventory turnover in 2012? What is its gross profit percentage? Evaluate M&S’s inventory turnover and its gross profit percentage.

Explain why mortgage defaults during the credit crisis in 2008 and 2009 adversely affected financial institutions that did not originate the mortgages. What role did these institutions play in financing the mortgages? (LO4)

1.         : Is nice related to any concepts in the chapter, such as agreeableness, conscientiousness, or emotional intelligence? Discuss.

Estimate the real interest rate over the last year. If financial market participants overestimate inflation in a particular period, will real interest rates be relatively high or low? Explain. (LO2)

Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds). (LO2, LO3)

Veldre Company provides the following information about its defined benefit pension plan for the year 2014. Service cost $ 90,000 Contribution to the plan 105,000 Prior service cost amortization 10,000 Actual and expected return on plan assets 64,000 Benefi ts paid 40,000 Plan assets at January 1, 2014 640,000 Projected benefi t obligation at January 1, 2014 700,000 Accumulated OCI (PSC) at January 1, 2014 150,000 Interest/discount (settlement) rate 10% Instructions Compute the pension expense for the year 2014.

In each of the following independent cases, determine the taxpayer’s filing status and the number of dependents the taxpayer is allowed to claim.

What are some common separately stated items, and why must they be separately stated to the partners?

What are the two ways that other comprehensive income may be displayed (reported)?

By referring to each of the above determinants of supply, identify what would cause (a) the supply of potatoes to fall and (b) the supply of leather to rise.

Describe how a country’s laws can influence the degree of its financial market liquidity. (LO3)

1.              : What would you do now if you were Rankin? How might you awaken more enthusiasm in your team for completing this project on time? Suggest specific steps.

Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to average tax rates?

Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable $789,000. This balance consists of the following items: Due from regular customers $523,000 Refund receivable on prior year’s income taxes (an established claim) 15,500 Travel advance to employees 22,000 Loan to wholly owned subsidiary 45,500 Advances to creditors for goods ordered 61,000 Accounts receivable assigned as security for loans payable 75,000 Notes receivable past due plus interest on these notes 47,000 Total $789,000 Illustrate how these items should be shown in the balance sheet as of December 31.

This year, Agustin’s distributive share from Eden Lakes Partnership includes $8,000 of interest income, $4,000 of net long-term capital gains, $2,000 net §1231 gain from the sale of property used in the partnership’s trade or business, and $83,000 of ordinary business income. a. Assume that Agustin materially participates in the partnership. How much of his distributive share from Eden Lakes Partnership is potentially subject to the net investment income tax? b. Assume that Agustin does not materially participate in the partnership. How much of his distributive share from the Eden Lakes partnership is potentially subject to the net investment income tax?

On November 1, 2014, Columbo Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2015, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $450,000. All of the options were exercised during the year 2017: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share. Instructions Prepare journal entries relating to the stock option plan for the years 2015, 2016, and 2017. Assume that the employee performs services equally in 2015 and 2016.