Question & Answer

Since advertising increases a firm’s costs, will prices necessarily be lower with sales revenue maximisation than with profit maximisation?

Would any of these problems be lessened by the world returning to an adjustable peg system? If so, what sort of adjustable peg system would you recommend?

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 were P&G’s net sales for 2011? (b) What was the percentage of increase or decrease in P&G’s net sales from 2010 to 2011? From 2009 to 2010? From 2009 to 2011? (c) In its notes to the financial statements, what criteria does P&G use to recognize revenue? (d) How does P&G account for trade promotions? Does the accounting conform to accrual accounting concepts? Explain.

What will determine the size of the shift in the BP curve in each case?

Geiberger Corporation manufactures replicators. On January 1, 2014, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each January 1, beginning January 1, 2014. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Geiberger’s January 1, 2014, journal entries.

Lorenzo is considering starting a trucking company either in Texas or Oklahoma.  He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business.  What types of taxes may influence his decision of where to locate his business?

When is revenue recognized under the cost-recovery method?

Turner, Inc. began work on a $7,000,000 contract in 2014 to construct an office building. During 2014, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2014, the estimated future costs to complete the project total $3,300,000. Prepare Turner’s 2014 journal entries using the percentage-of-completion method.

Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2014, Hamilton began work under contract #E2-D2, which provided for a contract price of $2,200,000. Other details are as follows. 2014 2015 Costs incurred during the year $640,000 $1,425,000 Estimated costs to complete, as of December 31 960,000 –0– Billings during the year 420,000 1,680,000 Collections during the year 350,000 1,500,000 Instructions (a) What portion of the total contract price would be recognized as revenue in 2014? In 2015? (b) Assuming the same facts as those shown above except that Hamilton uses the cost-recovery method of accounting, what portion of the total contract price would be recognized as revenue in 2015?

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 were M&S’s sales for 2012? (b) What was the percentage of increase or decrease in M&S’s sales from 2011 to 2012? From 2010 to 2011? From 2010 to 2012? (c) In its notes to the financial statements, what criteria does M&S use to recognize revenue? (d) How does M&S account for discounts and loyalty schemes? Does the accounting conform to accrual-accounting concepts? Explain.

Instructions Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What were Coca-Cola’s and PepsiCo’s net revenues (sales) for the year 2011? Which company increased its revenues more (dollars and percentage) from 2010 to 2011? (b) Are the revenue recognition policies of Coca-Cola and PepsiCo similar? Explain. (c) In which foreign countries (geographic areas) did Coca-Cola and PepsiCo experience significant revenues in 2011? Compare the amounts of foreign revenues to U.S. revenues for both Coca-Cola and PepsiCo.

Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2014. On May 1, 2014, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued on October 1. Compute Douglas’s weighted-average number of shares outstanding for 2014.

1.    : Do you think it is wise for a top executive to fire a manager who is bringing in big sales and profits for the company but not living up to a cultural value of “showing respect for employees”? Explain.

The book basis of depreciable assets for Erwin Co. is $900,000, and the tax basis is $700,000 at the end of 2015. The enacted tax rate is 34% for all periods. Determine the amount of deferred taxes to be reported on the balance sheet at the end of 2015.

Should regulators of utilities that have been privatised into several separate companies allow (a) horizontal mergers (within the industry); (b) vertical mergers; (c) mergers with firms in other industries?

Kase, an individual, purchased some property in Potomac, Maryland, for $150,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase’s Maryland property. Kase agrees to the exchange. What is Kase’s realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios?   a. The transaction qualifies as a like-kind exchange, and the fair market value of each property is $675,000. b. The transaction qualifies as a like-kind exchange, and the fair market value of

Why are both the price elasticity of demand and the price elasticity of supply likely to be greater in the long run?

What is the difference between a tax deduction and a tax credit?Is one more beneficial than the other?Explain.

Lehman Brothers continued to report positive earnings throughout the spring of 2008, even though mortgage valuations were clearly declining. Nevertheless, some institutional investors were concerned that Lehman Brothers might have been overstating its earnings in 2007 and early 2008. Explain why more complete and accurate disclosure by banks and other financial institutions may help to resolve financial problems. Could managers’ compensation incentives discourage banks from fully disclosing their financial condition? Why or why not? (LO5)

Which of the following are positive statements and which are normative? (a)  Cutting the higher rates of income tax will redistribute incomes from the poor to the rich. (b)  It is wrong that inflation should be reduced if this means that there will be higher unemployment. (c)  It is incorrect to state that putting up interest rates will reduce inflation. (d)  The government should introduce road pricing to address the issue of congestion. (e)  Current government policies should be aimed at reducing the deficit rather than stimulating growth.

Differentiate between “loss carryback” and “loss carryforward.” Which can be accounted for with the greater certainty when it arises? Why?

Where can authoritative IFRS related to the accounting for taxes be found?

(i) What do you understand by the term financialisaton? (ii) How might we assess the financial well-being of households?

Should all developing countries aim over the long term to become exporters of manufactured products?

Describe the January effect. (LO3)