On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years

E 19-2 Restricted stock award plan

On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.

Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.

Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years

4-56 The following table contains calculations of several key ratios for Indianola Pharmaceutical Company, a maker of proprietary and prescription drugs

4-56 (Analytical Review and Planning the Audit) The following table contains calculations of several key ratios for Indianola Pharmaceutical Company, a maker of proprietary and prescription drugs. The company is publicly held and is considered a small-to medium-size pharmaceutical company. Approximately 80% of its sales have been in prescription drugs; the remaining 20% are in medical supplies normally found in a drugstore. The primary purpose of the auditor’s calculations is to identify potential risk areas for the upcoming audit. The auditor recognizes that some of the data may signal the need to gather other industry- or company-specific data.

A number of the company’s drugs are patented. Its number-one selling drug, Anecillin, which will come off of patent in two years, has accounted for approximately 20% of the company's sales ‘during the past five years.

INDIANOLA PHARMACEUTICAL RATIO ANALYSIS

Ratio Current One Year Two Years Three Years Current
Year Previous Previous Previous Industry
Current ratio -----1.85 1.89 2.28 2.51 2.13
Quick ratio ------------------------------- 0.85 0.93 1.32 1.76 1.40
Interest coverage:
Times Interest earned------------------- 1.30 1.45 5.89 6.3 4.50
Days’ sales in receivables-------------- 109 96 100 72 69
Inventory turnover---------------------- 2.40 2.21 3.96 5.31 4.33
Days’ sales in inventory---------------- 152 165 92 69 84
Research & development as a
Percent of sales -------------------------- 1.3 1.4 1.94 2.03 4.26
Cost of goods sold as percent
Of sales------------------------------------ 38.5 40.2 41.2 43.8 44.5
Debt/equity ratio------------------------- 4.85 4.88 1.25 1.13 1.25
Earnings per share----------------------- $1.12 $2.50 $4.32 $4.26 n/a
Sales/tangible assets--------------------- 0.68 0.64 0.89 0.87 0.99
Sales/total assets------------------------- 0.33 0.35 0.89 0.87 0.78
Sales growth over past year---- 3% 15% 2% 4% 6%

Required
a. What major conclusions regarding financial reporting risk can be drawn from the information show in the table? Be specific in identifying specific account balances that have a high risk of misstatement. State how that risk analysis will be used in planning the audit. Be very specific in your answer. You should identify a minimum of four financial reporting risks that should be addressed during the audit and how they should be addressed.
b. What other critical background information might you want to obtain as part of the planning of the audit or would you gather during the conduct of the audit? Briefly indicate the probable sources of the information.
c. Based on the information, what major actions did the company take during the immediately preceding year? Explain.


Click here for the solution: The following table contains calculations of several key ratios for Indianola Pharmaceutical Company, a maker of proprietary and prescription drugs

On July 1, 20x1, Littleton Inc. loaned a key supplier of raw material $2,000,000 to construct a new processing facility

On July 1, 20x1, Littleton Inc. loaned a key supplier of raw material $2,000,000 to construct a new processing facility. The loan is due on July 1, 20x3 and pays interest each December 31 and June 30. The supplier insisted on a variable rate loan. The controller of Littleton wants to avoid the risk of variable rate fluctuation and entered into an interest rate swap in which it will pay the variable rate on $2,000,000 in exchange for a fixed rate of 8.3%. The swap is settled on the interest payment dates. Variable interest rates and the value of the swap on selected dates are as follow:

Variable rate Value of the swap
July1, 20x1 7.9%
December 31, 20x1 7.75% 10,400

Prepare all journal entries to record this hedge through December 20x1.

Click here for the solution: On July 1, 20x1, Littleton Inc. loaned a key supplier of raw material $2,000,000 to construct a new processing facility