Questions and Answers of Accounting Theory Conceptual

1===+1. What is the argument for finite uniformity in accounting for leases?
=+5. Every fall U.S. News and World Report comes out with a much-awaited ranking of American colleges and universities (you may have even used it yourself). While there has been much criticism of the
=+4. Accounting theory has several different definitions and approaches.Using Hendriksen and van Breda (1992, Chapter 1) and Belkaoui(1993, Chapter 3), list and briefly discuss these definitions and
=+c.Assume that a new standard would allow only FIFO in inventory and cost of goods sold accounting with weighted average and LIFO being eliminated (you may ignore income tax effects).
=+b.SFAS No. 115 requires marketable equity securities to be carried at fair value (market value). Its predecessor, SFAS No. 12, required mar-ketable equity securities to be carried at
=+The latest standard on troubled debt restructuring. SFAS No. 114, calls for newly restructured receivables to be discounted at the orig-inal or historical discount rate, Two board members disagreed
=+3. Objectivity (also called "verifiability") and bias ("usefulness") are two extremely important characteristics of accounting. Discuss each of the following situations in terms of how you believe
=+Revenue is $1,000 per year and the internal rate of return is 10%and all cash flows are received (and distributed) on December 31.Required:Income statements for the years 2001, 2002, and 2003
=+2. J & J Enterprises is formed on December 31, 2000. At that point it buys one asset costing $2,487. The asset has a three-year life with no salvage value and is expected to generate cash flows of
=+1. Assume that three accountants have been selected to measure the income of a firm under two different income measurement systems.The results for the first income system (M,) were incomes of
=+23. Do you think that the color-coded terrorist threat system instituted by the Department of Homeland Security involves a measurement system? Explain.
=+22. What is the difference between principles based versus rules based account- ing standards. Give an example of this distinction.
=+21. Did the 21st century begin on January 1, 2000?
=+20. "Political factors are an adverse influence upon the accounting standard-setting function." Discuss this statement.
=+19. Do you think that changes brought about in accounting standards by failures of publicly traded companies, such as Enron, should be classified under political factors or economic decisions?
=+18. Are issues of costliness and timeliness as they pertain to accounting standards part of accounting theory?
=+17. How were the "holding gain" numbers in the December 31, 2002, and 2003, balance sheets (Exhibit 1-6) determined?
=+16. How do measurement and calculation in accounting differ from each other? Give three examples of each.
=+15. Why is discounted cash flow extremely difficult to implement in the accounts?
=+14. How do entry- and exit-value approaches differ?
=+13. If general price-level adjustment is concerned with the change over time of the purchasing power of the monetary unit, why is it not con-sidered to be a current value approach?
=+12. What type of measurement scale (nominal, ordinal, interval, or ratio) is being used in the following situations?Musical scales Insurance risk classes for automobile insurance Numbering of pages
=+(1.1). Thus, some assets might be valued on the basis of replacement cost and others on net realizable value. Do you see any problems with this proposal? Discuss.
=+11. Some individuals believe that valuation methods proposed by a standard-setting body, such as FASB, should be based on those measurement pro-cedures having the highest degree of objectivity as
=+10. Accounting practitioners have criticized some proposed accounting standards on the grounds that they would be difficult to implement because of measurement problems. They therefore conclude
=+9. A great deal of interest is generated each week during the college foot- ball and college basketball seasons by the ratings of the teams by the Associated Press and the ESPN/USA Today Coaches
=+8. Can assessment measures be used for predictive purposes?
=+7. "The measurement process itself is quite ordinary and routine in virtu- ally all situations." Comment on this quotation.
=+6. What type of measurement is the measurement of objectivity in Equation (1.1): nominal, ordinal, interval, or ratio scale?
=+5. Is accounting theory, as the term is defined in this text, exclusively developed and refined through the research process?
=+4. How can political factors be an input into accounting policy making if the latter is concerned with governing and making the rules for finan- cial accounting?
=+2. Why do the value choices (entry value, exit value, and historical cost) fall within the domain of accounting theory?v1===+3. Of the three inputs to the accounting policy-making function, which
=+1. What does the term "social reality" mean and why are accounting and accounting theory important examples of it?
=+ What developments are leading to erosion of differences between at least some members of the Anglo-American and continental groups?
=+2. What are the main distinctions between the Anglo-American and the continental models relative to accounting and financial reporting?Within the Anglo-American group, how does the United States
=+1. Why do the six criteria or guidelines for determining the functional cur-rency in SFAS No. 52 provide a good example of finite uniformity?
=+17. Given a choice among different sets of accounting standards (FASB ver-estis IASB) after 2005, what potential drawbacks do you ser?
=+16. How does the role of government differ in the United Kingdom and the United States relative to financial reporting?
=+15. What are the main distinctions between the Anglo-American and the continental models?
=+14. What is the relationship between the IFAC and IASC?
=+13. Why has no continental model country developed a conceptual framework?
=+12. Are there different conceptions of the true and fair view?
=+11. Compare the true and fair view of the United Kingdom, the present fairly outlook of the United States, and the legalistic view of the conti-nental model.
=+10. Why has the EU opted to use exclusively IASB standards for consoli-dated financial statements beginning in 2005?
=+9. What is convergence and how does it differ from harmonization?
=+8. What does harmonization of accounting standards mean?
=+7. Why did SFAS No. 8 present an enormous problem in the area of eco-nomic consequences?
=+6. What does the term functional currency mean?
=+5. What is the disappearing asset problem?
=+4. Why does SFAS No. 52 provide an example of finite uniformity in terms of the use of remeasurement?
=+3. Why would balance sheets prepared under SFAS No. 8 lack additivity?
=+2. How do accounting exposure and economic exposure differ?
=+1. What are the differences between a foreign currency orientation and a U.S. dollar orientation regarding the translation of foreign currency operations?
=+. If you had to choose among the current method of consolidation for combinees where the combinor owns at least 50 percent, the new entity approach, or proportionate consolidation, which would you
=+b. Determine the amounts of the goodwill write-offs (if any) in 2005, 2006, and 2007.
=+3. Acquirer Company bought Servile Company for $5.000,000 on January 2.2004. The fair market value of the individual net assets was $3.500,000. In succeeding years, the fair market value of
=+2. The following items pertain to a parent company and its 60 percent-owned subsidiary at year end. There are no cross-guarantees of debt between the parent and subsidiary.Parent Subsidiary Current
=+1. Examine the 2001 and 2002 annual reports for a corporation having a financial subsidiary. (Your instructor may suggest a corporation on the EDGAR Website. http://www.sec.gov/edgarhp.htm).
=+19. What are the main issues surrounding the special purpose entity.
=+18. Why does the elimination of poolings improve representational faith-fulness and comparability?
=+17. Why does the elimination of poolings (SFAS No. 141) and the indefinite life of goodwill subject to impairment (SFAS No. 142) represent a possi-ble "quid pro quo?"
=+16. Distinguish among sell-offs, spin-offs. split-offs, and split-ups.
=+15. What is an equity carve-out?
=+14. How are minority interests handled in consolidations?
=+13. What is push-down accounting? What problems would arise in connec-tion with the implementation?
=+12. Describe the implicit assumption made in SFAS No. 94 about the report-ing entity.
=+11. Why does the FASB's reporting entity project logically precede any con-clusion regarding consolidated financial reporting?
=+10. Discuss the limitations of consolidated financial statements and why dual reporting (consolidated and separate entity statements) as well as other forms of disaggregated reporting, such as SFAS
=+9. What are some reasons why consolidated reports are thought to be relevant?
=+8. What is meant by the term one-line consolidation? What differences occur in Enancial statements when a one-line consolidation rather than full consolidation is used?
=+7. Compare the present system involving consolidation, equity method, and fair value accounting for intercorporate equity investments with finite uniformity as it exists in lease accounting.
=+6. The equity method reports neither the investor's cost nor the market value of the investment. Do you believe the equity method provides use-ful information? Why or why not?
=+5. Compare proportionate consolidation with capitalizing of all leases extending beyond a year, another example of rigid uniformity.
=+4. Why would proportionate consolidation result in rigid uniformity for intercorporate equity investment accounting?
=+3. Why may companies not be indifferent to purchase and pooling account-ing, and what do we know about this issue from research studies?
=+2. The logic of pooling rests heavily on the assumption that no substantive economic transaction occurs between the combinor and stockholders of the combinee, Evaluate this assumption.
=+1. Are there relevant circumstance differences between purchase and pooling of interests?
=+. Should all leases beyond a year be capitalized?
=+The position of both the majority and the dissenters center on issues of uniformity and comparability.Required:Using the perspective on uniformity developed in Chapter 9, analyze the rigid versus
=+e. Do you think it is useful to convert operating leases to capital leases for financial statement analysis purposes? Discuss.
=+d.Determine the debt-equity ratio under the (a) operating lease assumption and (b) capital lease assumption.
=+C.assumption and (b) capital lease assumption.
=+b. Determine the net income after taxes if the leases are treated as capital leases, Determine the return on assets under the (a) operating lease
=+Net income after taxes was $6,500 for 2001. McAdoo's marginal tax rate is 35 percent. On December 31, 2000, McAdoo entered into sev-eral major lease contracts. These leases were all for 10 years
=+5. This problem shows the importance of considering the importance of converting operating leases to capital leases for the purpose of financial statement analysis. It is based upon the techniques
=+extend beyond the date a bargain purchase option becomes exercisable. A lease which is cancellable (i) only upon the occurrence of some remote contingency, (ii) only with the permission of the
=+4. One of the four capitalization tests of SFAS No. 13 is that the lease term is 75 percent or more of the asset's remaining economic life. Lease term is defined as follows in SFAS No. 13 (as
=+C.as the differences between lessor and lessee.
=+b.Assume the same facts as before except that the asset is first sold to a finance company, which then leases the asset to the lessee.Prepare the required entries in all three years for lessor and
=+3. Assume the following facts concerning a sales-type lease:The lease term is three years and qualifies as a capital lease for both lessor and lessee. The asset reverts to the lessor at the end of
=+d. Do you think that Wright's action in (b) represents a loophole to avoid capitalization or it is a useful part of the present leasing rules?Explain.
=+. Will lessee and lessor's accounting for this lease be symmetrical(capital lease for both lessor and lessee or operating lease for both lessor and lessee)? Explain.
=+b. What can Wright do to convert this lease to an operating lease?Explain and show figures.
=+2. Wright Company leases an asset for five years on December 31, 2000.Annual lease cost of $10,000 is payable on each December 31 beginning with the year 2001. In addition to the annual lease cost,
=+b.Assume that the company's net income for 1998 was $20 million.What was its return on assets (ROA) (a) before and (b) after cap-italizing the operating leases? Use straight-line depreciation over
=+1. Human Genome Sciences, Inc ., a biopharmaceutical company, discov-ers, develops, and markets new gene and protein-based drugs. Its 1998 annual report showed property, plant, and equipment net of
=+15. Why is the G4+1 like the Big Ten (a.k.a. Western Athletic Conference)?
=+14. Should valuable lease options of lessees be capitalized?
=+13. What considerations may have motivated the FASB to grant a four-year transitional period in capitalizing pre-1977 leases meeting the capital-ization tests of SFAS No. 13: What other political
=+12. Does the reporting of capital leases appear to have value to users of financial statements? Why are there costs of reporting capital leases?

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