Question & Answer

The financial statements of P&G are presented in Appendix 5B. The company’s complete annual report, including the notes to the financial statments, can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and the related information in the annual report to answer the following questions. (a) What alternative formats could P&G have adopted for its balance sheet? Which format did it adopt? (b) Identify the various techniques of disclosure P&G might have used to disclose additional pertinent financial information. Which technique does it use in its financials? (c) In what classifications are P&G’s investments reported? What valuation basis does P&G use to report its investments? How much working capital did P&G have on June 30, 2011? On June 30, 2010? (d) What were P&G’s cash flows from its operating, investing, and financing activities for 2011? What were its trends in net cash provided by operating activities over the period 2009 to 2011? Explain why the change in accounts payable and in accrued and other liabilities is added to net income to arrive at net cash provided by operating activities. (e) Compute P&G’s (1) current cash debt coverage, (2) cash debt coverage, and (3) free cash flow for 2011. What do these ratios indicate about P&G’s financial condition?

Simon Company determines that its goodwill is impaired. It finds that its implied goodwill is $360,000 and its recorded goodwill is $400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?

What is work hardening?

On January 2, 2014, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2014 (the intrinsic value is therefore $0). On March 31, 2014, the market price for Merchant stock is $53 per share, and the time value of the option is $200. Instructions (a) Prepare the journal entry to record the purchase of the call option on January 2, 2014. (b) Prepare the journal entry(ies) to recognize the change in the fair value of the call option as of March 31, 2014. (c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2014?

Make a list of six possible aims a manager of a high street department store might have. Identify some conflicts that might arise between these aims?

The wage rate a firm has to pay and the output it can produce varies with the number of workers as follows (all figures are hourly): Number of workers 1 2 3 4 5 6 7 8 Wage rate (ACL) (£) 3 4 5 6 7 8 9 10 Total output (TPPL) 10 22 32 40 46 50 52 52 Assume that output sells at £2 per unit. (a)  Copy the table and add additional rows for TCL, MCL, TRPL and MRPL. Put the figures for MCL and MRPL in the spaces between the columns (b)  How many workers will the firm employ in order to maximise profits?     (c)  What will be its hourly wage bill at this level of employment?     (d)  How much hourly revenue will it earn at this level of employment?       (e)  Assuming that the firm faces other (fixed) costs of £30 per hour, how much hourly profit will it make?       (f)   Assume that the workers now formed a union and that the firm agreed to pay the negotiated wage rate to all employees. What is the maximum to which the hourly wage rate could rise without causing the firm to try to reduce employment below that in (b) above? (See Figure 10.10.) (g)  What would be the firm’s hourly profit now?

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

Describe the process of bookbuilding. Why is bookbuilding sometimes criticized as a means of setting the offer price? (LO3)

Assume Rita’s consulting business generated $15,000 in gross income.

In a continuous processing situation (such as an oil refinery), the beginning and ending WIP inventories are frequently the same. How does this simplify determination of equivalent units completed?

Show the effect of an increase in government expenditure by using (a) the injections and withdrawals diagram; (b) the income/expenditure diagram (see Figures 17.8 and 17.10).

Discuss the importance of job satisfaction and trust for effective employee performance.

Hardaway earned $100,000 of compensation this year. He also paid (or had paid for him) $3,000 of health insurance (not through an exchange). What is Hardaway’s AGI in each of the following situations? (Ignore the effects of Social Security and self-employment taxes.)

: Describe two ways organizations can enhance employee resilience to manage stress and improve health, satisfaction, and productivity.

Tonya Jefferson (single), a sole proprietor, runs a successful lobbying business in Washington, D.C. She doesn’t sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, to buy a place somewhere sunny and warm. Tonya’s townhouse is worth $1,000,000 and the land is worth another $1,000,000. The original basis in the townhouse was $600,000, and she has claimed $250,000 of depreciation deductions against the asset over the years. The original basis in the land was $500,000. Tonya has located a buyer that would like to finalize the transaction in December of the current year. Tonya’s marginal ordinary income tax rate is 35 percent, and her capital gains tax rate is 20 percent. a.       What amount of gain or loss does Tonya recognize on the sale?  What is the character of the gain or loss? What effect does the gain or loss have on her tax liability? b.      In addition to the original facts, assume that Tonya reports the following nonrecaptured net §1231 loss:   Year Net §1231 Gains/(Losses) Year 1 ($200,000) Year 2 0 Year 3 0 Year 4 0 Year 5 0 Year 6 (current year) ?   What amount of gain or loss does Tonya recognize on the sale?  What is the character of the gain or loss? What effect does the gain or loss have on her year 6 (the current year) tax liability?

Vickie Plato, accounting clerk in the personnel office of Streisand Corp., has begun to compute pension expense for 2016 but is not sure whether or not she should include the amortization of unrecognized gains/losses. She is currently working with the following beginning-of-the-year present values for the projected benefit obligation and market-related values for the pension plan: Projected Plan Benefit Assets Obligation Value 2013 $2,200,000 $1,900,000 2014 2,400,000 2,500,000 2015 2,900,000 2,600,000 2016 3,900,000 3,000,000 The average remaining service life per employee in 2013 and 2014 is 10 years and in 2015 and 2016 is 12 years. The net gain or loss that occurred during each year is as follows. 2013 $280,000 loss 2014 85,000 loss 2015 12,000 loss 2016 25,000 gain (In working the solution, you must aggregate the unrecognized gains and losses to arrive at year-end balances.) Instructions You are the manager in charge of accounting. Write a memo to Vickie Plato, explaining why in some years she must amortize some of the net gains and losses and in other years she does not need to. In order to explain this situation fully, you must compute the amount of net gain or loss that is amortized and charged to pension expense in each of the 4 years listed above. Include an appropriate amortization schedule, referring to it whenever necessary.

Discuss the reasons why most welding operations are inherently dangerous.

Your classmate Kate believes that the equity method is applied with a strict application of the “20%” rule. Do you agree? Explain.

List possible sources of additional paid-in capital.

Graber Corporation runs a long-haul trucking business. Graber incurs the following expenses: replacement tires, oil changes, and a transmission overhaul. Which of these expenditures may be deducted currently and which must be capitalized? Explain.

Consider the prevailing conditions that could affect the demand for stocks, including inflation, the economy, the budget deficit, and the Fed’s monetary policy, political conditions, and the general mood of investors. Based on these conditions, do you think stock prices will increase or decrease during this semester? Offer some logic to support your answer. Which factor do you think will have the biggest impact on stock prices? (LO3)

Tan Chin Company purchases a building for $11,300,000 on January 2, 2014. An engineer’s report shows that of the total purchase price, $11,000,000 should be allocated to the building (with a 40-year life), $150,000 to 15-year property, and $150,000 to 5-year property. No residual (salvage) value should be considered. Compute depreciation expense for 2014 using component depreciation.

Jerry Prior, Beeler Corporation’s controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff, including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the doubledeclining- balance method for both financial reporting and tax purposes, and he’s thinking of selling equipment that, given its age, is primarily used when there are periodic spikes in demand. The equipment has a carrying value of $2,000,000 and a fair value of $2,180,000. The gain on the sale would be reported in the income statement. He doesn’t want to highlight this method of increasing income. He thinks, “Why don’t I increase the estimated useful lives and the salvage values? That will decrease depreciation expense and require less extensive disclosure, since the changes are accounted for prospectively. I may be able to save my job and those of my staff.” Instructions Answer the following questions. (a) Who are the stakeholders in this situation? (b) What are the ethical issues involved? (c) What should Prior do?

When we were looking at wage rates, were we talking about the price of labour or the price of labour services? Is this distinction between the price of a factor and the price of factor services a useful one in the case of labour? Was it in Roman times?

Melting furnaces for glassworking can be divided into four types. Name three of the four types.