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.

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?

(a) Compute depreciation expense for 2011 and 2012 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double-declining balance method.

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

"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."

Unable to obtain a patent for the Slanket allowing competitors to enter the market (Burnham, 2009).

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

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

1. A change in the amortization rate for an intangible asset should be accounted for as a

b) Determine the carrying amount and tax base of the plant at year end. Prepare the

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

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

* If such asset ceases to be used in the previous year for scientific research related to the business of amalgamated company and is sold by the amalgamated company the sale price to the extent of cost of asset shall be treated