Week 1 – DQ 1

Why do companies offer stock options? What is the experience of either your organization or an organization that you are familiar with when it comes to stock option compensation? Should stock option compensation be included as an expense when calculating an organization’s net income? Explain why or why not. If so, how should the amount of expense be calculated?

Response #1 Companies offer stock option compensation plans to motivate and reward employees based on the value of the corporation's stock. The hypothesis here is that employees earning or holding the rights to stock options will work harder to increase shareholders' wealth than employees who are not. My organization do not offer stock option compensation plans, neither I am familiar with any organization that offers stock option compensation.

Week 1 – DQ 2

What are the differences between basic and diluted earnings per share? What are the differences between the numerator and the denominator in the basic and diluted earnings per share calculations? What actions can an organization take in order to improve their earnings per share? What is the experience of either your organization or an organization that you are familiar with when it comes to any of these actions? As an investor, do you evaluate a company as a potential investment using basic or diluted earnings per share? Explain why.

Response #1

What are the differences between basic and diluted earnings per share?

Week 1 Summary

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Response #1 Week 1 focused on two important subjects that I am not that familiar with but interesting nerveless: stock options and earnings per share (EPS). I learned that organizations offer stock options to employees to motivate and reward them. Companies do that mostly based in the assumptions that employees holding and earning the right to stock options will work harder and perform better, and this will ultimately increase shareholders’ wealth.

Week 2 – DQ 1

What are the differences between traditional and derivative instruments? Why do companies use derivative instruments? Explain whether or not derivatives are a good investment. What experience do you have with either traditional or derivative instruments in your organization or an organization that you are familiar with?

Response #1 According to our text, in regard to a payment provision, a derivative financial instrument such as a call option would be a change in stock price (underlying) times number of shares (notional amount), whereas a traditional financial instrument such as a trading security would be the stock price times the number of shares. In regard to the initial investment, the derivative would be an initial investment being much less than full cost, whereas traditional would be the investor paying the full cost.

Week 2 – DQ 2

Why do companies make investments in other companies? What are the differences between debt and equity investments? What is the experience of either your organization or an organization that you are familiar with when it comes to debt and/or equity investments? What would influence a company to choose equity or debt as an investment?

Response #1 Companies invest in other companies to earn a higher rate of return or to secure certain operating or financing arrangements with another company. Debt securities represent a creditor relationship with another entity. They include U.S. Government securities, municipal securities, corporate bonds, convertible debt, and commercial paper. Equity securities represent ownership interest such as common, preferred, or other capital stock.

E15-13 (a,b)

Stock Split and Stock Dividend)

The common stock of Warner Inc. is currently selling at $110 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Five million shares are issued and outstanding.

(a) How much is the debit to retained earnings if the board votes a 2-for-1 stock split?

$0

(b) Prepare the necessary journal entries if the board votes a 100% stock dividend.

Description/Account Debit Credit

Retained Earnings 50,000,000

Common Stock Dividend Distributable 50,000,000

(To record the declaration)

Common Stock Dividend Distributable 50,000,000

Common Stock 50,000,000

(To record the distribution)

Assignment from the Text

Chapter 15& 16

Name

ACC 423

Date

Instructor Name

P15-1 (Equity Transactions and Statement Preparation)

(a) Record the journal entries for the transactions listed above.

Jan. 11

Cash (20,000 x $16) 320000

Common Stock (20000x 5) 100000

Paid-in Capital in Excess of Par—Common 220000

(20000x11)

Feb. 1

Machinery 50000

Building 110000

Land 270000

Preferred Stock (4000x100) 400000

Paid-in Capital in Excess of Par—preferred 30000

July. 29

Treasury Stock—Common (1800x19) 34200

Cash 34200

Aug. 10

Cash (1800x14) 25200

Treasury Stock—Common

Paid-in Capital from Treasury Stock-common (1800x19) 34200

($25200-34200) -9000

Week 2 – Summary

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Response #1 Week two was a challenging week for me. There was a great deal of information covered. We discussed why companies make investments in other companies. I also learned about debt and equity investments which was interesting to me. We also discussed derivative instruments used within a company. Week two was packed with information and I enjoyed learning from everyone and I am looking forward to week three

Week 3 – DQ 1

Why are there differences between taxable and financial income? What are some examples of permanent and temporary differences? Why do these differences exist? How do they affect the financial statements? What experience do you have with either taxable and financial income and/or permanent and temporary differences in your organization or an organization that you are familiar with?

Response #1 There are differences between taxable and financial income because taxable income is used to compute income tax payable and uses IRS tax code. Financial income is used to provide useful information to investors and creditors and follows GAAP. Permanent differences result from items that enter into pretax financial income but never into taxable income, or enter into taxable income but never into pre tax financial income.

Week 3 – DQ 2

How are the tax benefits of net operating losses (NOL) disclosed on financial statements? Which is more beneficial to an organization, an NOL carryforward or an NOL carryback? Explain why. What experience do you have with NOL in your organization or an organization that you are familiar with? When would a company decide to forego a NOL carryback?

Response # 1 Tax benefits of net operating losses are disclosed on financial statements by loss carryback or loss carrryforward. Through use of a loss carryback, a company may carry the net operating loss back two years and receive refunds for income taxes paid in those years. The company must first apply the loss to the earlier year first and then to the second year. It may carry forward any loss remaining after the two-year carryback up to 20 years.

Exercise E17-7

(Trading Securities Entries)

On December 21, 2010, Zurich Company provided you with the following information regarding its trading securities.

December 31, 2010

Investments(Trading) Cost Fair ValueUnrealized Gain (Loss)

Stargate Corp. stock $20,000 $19,000 $(1,000)Carolina Co. stock 10,000 9,000 (1,000)Vectorman Co. stock 20,000 20,600 600 Total Portfolio $50,000 $48,600 (1,400)

Previous securities fair value adjustment balance -0- Securities fair value adjustment—Cr. $(1,400)

During 2011, Carolina Company stock was sold for $9,500. The fair value of the stock on December 31, 2011, was: Stargate Corp. stock-$19,300; Vectorman Co. stock-$20,500.

Week 3 – Summary

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Response #1 After a very tough week 2, I really made an effort to read and re-read the

chapter and to complete all the assignments at the beginning of the week. It made it much

easier to participate in class discussions and contributed to a much more enjoyable

learning experience. I actually really enjoyed learning about carryforwards and carrybacks

and the differences between financial and taxable income. I have always wondered how my

company's CPA determined the deferred tax liability/asset amount, and now I know!

Week 4 – DQ 1

What are the differences and similarities between a defined contribution plan and a

defined benefit plan? As an employee, explain why you would rather have a defined

contribution plan or a defined benefit plan? What experience do you have with pension

plans in your organization or an organization that you are familiar with? As an

employer, explain why you would rather offer a defined contribution plan or a defined

benefit plan to your employees?

Response #1

In a defined contribution plan, the employer agrees to contribute to a pension trust a certain sum each period based on a formula. The employee gets the benefit of gain from the assets contributed to the pension plan. A defined benefit plan outlines benefits that employees will receive when they retire.

Week 4 - DQ 2

What are the components of pension expense? How do the components of pension

expense differ among the various types of contribution and benefit plans? How is the

interest rate determined? Why are prior service costs amortized? Based on your

knowledge of the components of pension, what would make you more or less likely to

invest in a company?

Response #1

There are five components to pension expense and they are service costs, interest on the liability, the return on the plan asset, amortization of unrecognized prior to its cost, and the last one is the gain or loss component.

1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $120,000. This difference will reverse in equal amounts of $30,000 over the years 2011-2014.

2. Interest received on municipal bonds was $10,000.

3. Rent collected in advance on January 1, 2010, totaled $60,000 for a 3-year period. Of this amount, $40,000 was reported as unearned at December 31, for book purposes.

4. The tax rates are 40% for 2010 and 35% for 2011 and subsequent years.

5. Income taxes of $320,000 are due per the tax return for 2010.

6. No deferred taxes existed at the beginning of 2010.

Exercise E19-6

(Identify Temporary or Permanent Differences)

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.

For each item below, indicate whether it involves:

(1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset.

(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability.

(3) A permanent difference.

Use the appropriate number to indicate your answer for each.

Week 4 – Summary

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Response #1

Week four has been a very informative week of learning for me. Our discussions included

the defined benefit and defined contribution pension plans. I learned about the differences

of the two plans and it is information that I will definitely be able to apply in my future. We

also discussed the components of pension expense. I really enjoyed week four and can’t

believe we are headed for our final week of this class. I look forward to week five and really

enjoyed our discussions during week four.

Week 5 – DQ 1

What is a change in accounting principle? How do you determine if a change in

principle should be reported retroactively, currently, or prospectively? How do these

changes affect the financial statements? What experience do you have with change in

accounting principle in your organization or an organization you are familiar with?

Week 5 – DQ 2

What are the differences between counterbalancing and noncounterbalancing errors?

What are some examples of counterbalancing and noncounterbalancing errors? How

are each handled? What experience do you have with counterbalancing and/or

noncounterbalancing errors in your organization or an organization that you are

familiar with? Does it matter if the books are closed? Explain why or why not.

Response #1

Counterbalancing errors are those that will offset or corrected over two periods; such as

the failure to record accrued wages. Noncounterbalancing errors are those that are not

offset in the next accounting period; such as the failure to capitalize equipment that has a

useful life of 5 years. If the company presents comparative statements, it must restate the

amounts for comparative purposes.

Exercise E20-7

(Basic Pension Worksheet)

The following defined pension data of Rydell Corp. apply to the year 2010.

Projected benefit obligation, 1/1/10 (before amendment) $560,000Plan assets, 1/1/10 546,200Pension liability 13,800On January 1, 2010 Rydell Corp. through plan amendment,grants prior service benefits having a present value of 120,000Settlement rate 9%Service cost 58,000Contributions (funding) 65,000Actual (expected) return on plan assets 52,280Benefits paid to retirees 40,000Prior service cost amortization for 2010 17,000

Week 5 – Summary

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Response #1

This week our discussions touched up on changes in accounting principles and how they affect financial statements. Many companies make changes for various reasons. The changes can range from LIFO to FIFO method, to a change in type of depreciation used. Depending on the change, items on financial statements can be over or understated. We also discussed counterbalancing and noncounterbalancing errors. Counterbalancing errors can correct themselves over two years.