In Hong Kong, Li Ka-shing is known as “Superman.” Li and his family fl ed from China in 1940 in order to escape the advancing Japanese army. Li dropped out of school at age 13 to support his family by selling plastic trinkets on the streets of Hong Kong. Later, he scraped together enough money to buy a company that produced plastic flowers. His big success came when he bought the real estate surrounding his factory and watched the land skyrocket in value. Today, Li’s personal wealth is estimated to be in excess of $161 billion. Li continues his simple lifestyle even though the companies he controls comprise over 10% of the value of the Hong Kong stock market. When asked why his sons have much nicer houses and cars than he does, Li responded, “My sons have a rich father; I did not.’’

Li is chairman of Hutchison Whampoa Limited. Hutchison has five major business segments: property development, container port operations, retailing, telecommunications, and energy. In 2008, Hutchison Whampoa reported net income of HK$17.664 billion (equivalent to approximately US$ 2.265 billion).

1. Assume that one of Hutchison Whampoa’s overseas subsidiaries earns income of $1,000. The income tax rate in Hong Kong is 16.5%. When this income of $1,000 is transferred to the parent company in Hong Kong, it will be taxed, but no income tax is owed until then. What journal entry should Hutchison Whampoa make to record the income tax consequences of this $1,000 in income?

2. In 2008, Hutchison Whampoa reported earnings per share of HK$4.14. How many shares were outstanding during the year? (Note: See the net income information given above.)

3. Hutchison Whampoa reports that it records as assets the costs it incurs to sign up new subscribers to its cellular phone service network. These sign-up costs are then systematically transferred to expense over the following 12 to 24 months. What is the theoretical justification for this accounting practice?