Dashboard ACCT511.

01:ONLINE-FINANCIAL AND MANAGERIAL ACCOUTNING Module 5

M5 HW
Started on

Tuesday, September 20, 2016, 1:50 PM

State Finished
Completed on

Tuesday, September 20, 2016, 2:21 PM

Time taken 30 mins 10 secs

Points

29.00/29.00

Grade 100.00 out of 100.00

Support

Question 1
Correct
13.00 points out
of 13.00

Constructing and Assessing Income Statements Using Percentage-of

Completion
On March 15, 2014, Frankel Construction contracted to build a shopping center
at a contract price of $125 million. The schedule of expected (which equals
actual) cash collection and contract costs follow ($ millions):
Year

Cash

Cost Incurred

Collections

2014

$ 30

$ 20

2015

50

45

2016

45

35

Total

$ 125

$ 100

(a) Calculate the amount of revenue, expense, and net income for each of the
three years 2014 through 2016 using the percentage-of-completion revenue
recognition method.(Round answers to the nearestwhole number.)
Percentage of Completion Method
Year

Costs incurred

Percent of total

Revenue

expected costs

recognized

Income

2014 $

20

20

% $

25

2015

45

45

56

11

2016

35

35

44

$100

$125

$25

(b) Which of the following statements best summarizes our conclusion about
the usefulness of the percentage-of-completion method for this company?
The percentage -of-completion method is not useful because it does not
provide information about the total revenues over the life of the project.
The percentage-of-completion method is an acceptable method under
GAAP for contracts spanning more than one accounting period.
The percentage-of-completion method does not provide a good estimate
of the revenue and income earned in each period.
The percentage -of-completion method is not useful because it is so
dependent upon the completion estimate used by the company and can be
easily manipulated.
1.00 points out of 1.00

The correct answer is: The percentage-of-completion method is an

acceptable method under GAAP for contracts spanning more than one
accounting period.
Check

Correct

Marks for this submission: 13.00/13.00.

Question 2
Correct
8.00 points out of
8.00

Interpreting the Income Tax Expense Footnote

The income tax footnote to the nancial statements of FedEx Corporation
follows.
The components of the provision for income taxes for the years ended May 31
were as follows:
($ millions)

2013

2012

2011

Current provision (benet)

Domestic

Federal

$ 512

$ (120)

$ 79

86

80

48

Foreign

170

181

198

768

141

325

Deferred provisions (benet)

Domestic

Federal

175

947

485

(7)

21

12

Foreign

(42)

(9)

126

968

488

State and local

State and local

Provision for income taxes

$ 894 $ 1,109 $ 813

(a)What is the amount of income tax expense reported in FedEx's 2013, 2012,
and 2011 income statements?
2013 Income Tax Expense = $ 894
2012 Income Tax Expense = $ 1,109
2011 Income Tax Expense = $ 813

million
million
million

(b) What percentage of total tax expense is currently payable in each year?
(Round your answers to the nearest whole number.)
2013 86

2012 13

2011 40

Which of the following statements best describes why the percentages of total
tax expense are dierent each year?
Dierences in the percentage of income tax expense that is currently
payable arise because of uctuation in the amount of deferred income tax
assets or liabilities.
Dierences in the percentage of income tax expense that is currently
payable arise because tax laws change frequently.
Dierences in the percentage of income tax expense that is currently
payable arise solely because of uctuations in the amount of taxable income.
Dierences in the percentage of income tax expense that is currently
payable arise because companies typically defer tax payments in periods of
reduced cash ow.
1.00 points out of 1.00
The correct answer is: Dierences in the percentage of income tax
expense that is currently payable arise because of uctuation in the
amount of deferred income tax assets or liabilities.

(c) Which of the following provides the best example that can give rise to an
increase in the deferred tax liability?
Deferred tax liabilities arise in periods of higher taxable income.
Deferred tax liabilities generally arise because companies defer the
payment of taxes in periods of low cash ow.
Companies use an accelerated depreciation method for tax purposes that
results in a lower taxable income in the earlier years of the assets life vis--vis
net income on the nancial accounting books, which reect straight-line
depreciation for GAAP purposes.
Restructuring accruals provide the best example of an event that gives rise
to an increase in deferred tax liabilities.
1.00 points out of 1.00
The correct answer is: Companies use an accelerated depreciation
method for tax purposes that results in a lower taxable income in the
earlier years of the assets life vis--vis net income on the nancial
accounting books, which reect straight-line depreciation for GAAP
purposes.
Check

Correct

Marks for this submission: 8.00/8.00.

Question 3
Correct
8.00 points out of
8.00

Analyzing and Assessing Research and Development Expenses

Advanced Micro Devices (AMD) and Intel (INTC) are competitors in the computer
processor industry. Following is a table ($ millions) of sales and R&D expenses
for both companies.
AMD R&D Expense
2012

Sales

$ 1,354 $ 5,422

2011

1,453

6,598

2010

1,405

6,494

INTC R&D Expense

Sales

2012

$ 10,148 $ 53,341

2011

8,530

53,999

2010

6,576

43,623

(a) What percentage of sales are AMD and INTC spending on research and
development? (Round your answers to one decimal place.)

AMD

INTC

2012

25

19

2011

22

15.8

2010

21.6

15.1

(b) Which of the following statements best describes how AMD's and INTC's
balance sheets and income statements are aected by accounting for R&D
costs?
R&D assets increase the balance sheets of both companies.
Accounting for R&D costs increases protability because the expensing of
R&D costs is deferred and revenues from R&D-related projects are recognized
in current income.
R&D is initially recognized on the balance sheet and, subsequently,
amortized (similar to depreciation of PPE).
Expensing R&D costs (rather than capitalizing and depreciating them)
results in unrecorded assets on both AMD's and INTC's balance sheets.
1.00 points out of 1.00
The correct answer is: Expensing R&D costs (rather than capitalizing and

depreciating them) results in unrecorded assets on both AMD's and

INTC's balance sheets.

(c) Which of the following statements best explains how we evaluate R&D
spending for eectiveness and/or involvement (via R&D as a percent of sales)?
We can infer the sole eectiveness of R&D by measuring R&D expense as a
percentage of sales.
Over time, the number and quality of new product introductions, number
of patents, and related measures, can be compared across companies and
against relative levels of R&D spending.
Because R&D costs are capitalized on the balance sheet, we can gauge the
eectiveness of R&D spending by looking at the amount of R&D assets that
are recognized.
R&D costs typically remain constant in absolute dollars, but decline each
year as a percentage of sales when revenues increase.
1.00 points out of 1.00
The correct answer is: Over time, the number and quality of new
product introductions, number of patents, and related measures, can
be compared across companies and against relative levels of R&D
spending.
Check

Correct

Marks for this submission: 8.00/8.00.