Accounting II Week 2 Exercises and Problems

1a. One potential goal of earnings management is income smoothing. Briefly discuss why income smoothing might be a goal of management, including a discussion of incentives to smooth income. What techniques might be used to accomplish income smoothing beyond the selection of depreciation and inventory costing alternatives?

Wells Fargo shows a much higher profitability ratio than Samsung, with over 8X that of Samsung. This is to be expected as services are typically more profitable than hardware sales which operate on leaner margins. Wells Fargo also outperforms Samsung significantly on return on sales with over 25X better performance. This again is attributable to better margins on services than hardware. Wells Fargo has a much stronger return on equity than Samsung with a Dupont ratio over 5X higher than Samsung's. Samsung has a stronger financial leverage ratio than Wells Fargo with almost 20% lower ratio for Samsung. Samsung also has a much lower total asset turnover than Wells Fargo. This is attributable to the quick turnover of assets in the manufacturing industry compared to the slow turnover of assets in the financial services sector.

2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit.

1. What percentage of total assets consists of purchased intangible assets, net, at July 27th, 2013? At July 28th, 2013? What type of events triggered the existence of these intangible assets?

uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company 's manufacturing overhead data:

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

1. Jensen Company purchased a new machine on September 1, 2012, at a cost of $128,000. The company

C. Highly specified product: Since the patent is not commercialized and targeted towards the individual, there might not be a market at all for the patent. It could be that if RhoMed does not exercise the option to buy the patent back or defaults on its payments and Aberlyn can’t sell the patent in the market, it would essentially be stuck with the patent, an asset that has no value. We calculated the NPV in this scenario and concluded that Aberlyn would essentially lose nearly its entire investment.

patent suit brought against CKC three years earlier by the Tolemite Corporation and its licensee,

"Now I finally get some credit for my patent, and some awards," I said. "I not going to accept these awards since it's been this long after my original patent." "No money has been given to me," I said,"I have lost everything I'm worth."

of the plant is determined to be $112 000, with a remaining useful life of two years.

maintenance fees will be due throughout the life of the patent, on year 7.5 and year

By: Charn Gek Cheng, Chiang Soo Ling, Kummar Sokali Muthu Mogan, Lee Siew Fen Samantha

*) the term of the patents was originally 14 years. This was amended under TRIPS obligations to 20 years

pay the costs associated with filing for patent protection. In that case, you can pay a