Questions and Answers of Accounting Theory Conceptual

=+20. Why is the residual equity theory more in line with recent research in finance than entity and proprietary theory?
=+21. Why do you think securities markets more rapidly reflect "bad news"than "good news"?
=+22. Why do you think operating ratios (return-on-assets) are more sensitive to the combined effect of immateriality items than would be the case with solvency ratios (debt-to-equity and current
=+23. At the present time, the federal income tax code allows corporations to deduct interest expense but not cash dividends paid to stockholders.Does the tax code tie in with any of the equity
=+1. Assume the following for the year 2000 for the Staubus Company:Revenues$1,000,000 Operating expenses Cost of goods sold$400,000 Depreciation 100,000 Salaries and wages 200,000 Bond interest (8%
=+a.Determine the income under each of the following equity theories:Proprietary theory Entity theory (orthodox view)Entity theory (unorthodox view).Residual equity
=+b. Would any of your answers change if the preferred stock is con-vertible at any time at the ratio of 2 preferred shares for I share of common stock?
=+2. Critique A Statement of Basic Accounting Postulates and Principles by a study group at the University of Illinois (it should be on reserve or otherwise made available to you). Your critique
=+a. How do the definitions of postulates, concepts, and principles differ?
=+b. Are the examples of postulates, principles, and concepts consistent with their definitions?
=+c.Does this set of postulates, principles, and concepts provide a leg-islative body with a useful framework for deriving operating rules?
=+3. Sterling called conservatism, "the fundamental valuation principle of accounting." List and briefly discuss as many areas as you can in which an accepted method or technique is conservative,
=+4. Carefully state why the materiality principle requires a unifying stan-dard or guideline.
=+5. (Based on an article by nationally syndicated columnist Michael Kinsley). Michael Kinsley chides both Halliburton Corporation, a large construction company, and its auditor, Arthur Andersen, for
=+a. Is there a case that can be made for allowing Halliburton to book these overruns? What arguments, if any, support Halliburton's accounting methods?
=+b.What situations should prevent Halliburton from booking these overruns prior to collection?
=+.1. How do objectives differ from postulates?
=+3. Do you think that the standards mentioned in ASOBAT are really standards?
=+5. APB Statement 4 defines assets in the following terms: "Assets are eco-nomic resources of an enterprise that are recognized and measured in conformity with generally accepted accounting
=+10. Why has Ijiri advocated the need for a conceptual framework to imple-ment accountability?
=+13. The viewpoint has been expressed that financial statement preparers are also the largest class of users of financial statements. Hence, the pre-parer has a "unique ability" to recognize user
=+14. Why would "fairness" in financial reporting be difficult to implement?
=+15. What is the relationship between "stewardship" and "accountability"?Discuss,
=+16. Do you think that the income tax return mandated by the federal gov-ernment is an example of user heterogeneity?
=+1. A crucial question brought up in this chapter concerns the issue of whether the admittedly heterogeneous users of financial statements have highly diverse information needs in terms of their
=+. Do you see an evolutionary process involving the documents and reports presented in this chapter?
=+Why have management consulting operations created problems for the public accounting industry?
=+How similar are these two partial groups of principles?
=+The balance of net profits, income, gains and losses of a corporation from the date of incorporation (or from the latest date when a deficit was eliminated in a quasi-reorganization) after
=+Retained earnings should represent the cumulative balance of periodic earnings less dividend distributions in cash, property or stock, plus or minus gains and losses of such magnitude as not to be
=+In case there are two or more classes of stock, account for the equity capital invested for each and disclose the rights and preferences to dividends and to prin-cipal in liquidation.Principle B-4
=+Listed here are two principles from ARS 7 as well as some additional comments. This study was done under the auspices of the APB and was published in 1965.Principle B-1
=+f. If capital stock is issued nominally for the acquisition of property and it appears that at about the same time, and pursuant to a previous agree-ment or understanding, some portion of the stock
=+e. Notes or accounts receivable due from officers, employees, or affiliated com-panies must be shoum separately and not included under a general head-ing such as notes receivable or accounts
=+d. While it is perhaps in some circumstances permissible to show stock of a corporation held in its oun treasury as an asset, if adequately disclosed, the dividends on stock so held should not be
=+c. Earned surplus of a subsidiary company created prior to acquisition does not form a part of the consolidated earned surplus of the parent company and subsidiaries; nor can any dividend declared
=+b. Capital surplus, houever created, should not be used to relieve the income account of the current or future years of charges that would otherwise fail to be made there against. This rule might
=+a. Unrealized profit should not be credited to income account of the corpora-tion either directly or indirectly, through the medium of charging against such unrealized profits amounts which would
=+2. Five so-called broad principles of accounting were prepared by the AICPA's Special Committee on Cooperation with the Stock Exchange and approved by the NYSE's Committee on Stock List in 1932.
=+Are there any other situations that might be somewhat analogous to the bond redemption situation?
=+ Why would the definition of assets be helpful in analyzing a situation of this type?
=+Read Chapter 15 of ARB 43 on unamortized discount, issue cost, and redemption premium on bonds refunded. Why do you think these issues concerned the committee? What were the two acceptable
=+1. During its long tenure, the CAP produced a total of 51 ARBs. While the CAP was in existence, another committee, the Committee on Terminology of the American Institute of Accountants (the
=+19. What is the difference between joint and several liability and propor-tionate liability?
=+18. What is the relationship between the National Commission on Fraudulent Financial Reporting and Private Securities Litigation Reform Act of 1995?
=+17. "Since the FASB is independent from the AICPA, the latter is no longer concerned with standard setting and related issues." Comment on this statement.
=+16. In late 1990, the "Wyden Amendment" was stricken from the Crime Bill passed by Congress. The amendment would have required report-ing by auditors on internal controls. Letters sent by FEI
=+15. How will Sarbanes-Oxley of 2002 affect FASB's jurisdiction and independence?
=+14. In terms of financial reporting in the future, do you expect greater refinement of measurements appearing in the body of the financial statements or increasing disclosure with less effort
=+13. Can any overall trend be detected in FASB pronouncements? Explain and cite examples to substantiate your opinion.
=+Why were the CAP and the APB unsuccessful at this endeavor?
=+12. The three attempts at standard setting in the private sector (CAP, APB, and FASB) have all dealt with the need for a theoretical foundation.
=+11. What is the importance of the FAF and FASAC to the success of the FASB?
=+10. Explain how the role and form of research used by the APB and FASB differ.
=+9. Should constituents have input into the FASB decisions, or should the FASB neutrally and independently set standards?
=+8. "The FASB's standard-setting procedure is a fairly narrow and cut-and-dried approach to developing accounting standards." Do you agree with this statement? Comment.
=+7. What were the politics that led to the demise of both the GAP and the APB?
=+Why do you think it has generally kept a low profile?
=+6. What has been the SEC's role in the evolution of the rule-making process?
=+5. Discuss the significance of the SEC's ASR 150.
=+4. Do you think that the nonbinding status of the FASB's statements of financial accounting concepts (like that of APB Statement 4) is a good idea or not?
=+3. What is the weakness of Grady's approach in arriving at principles in ARS 7?
=+2. In what ways does the FASB differ most markedly from its two predecessors?
=+1. How did the APB pave the way for the FASB?
=+2. L'sing the article by Colin Lyas ("Philosophers and Accountants") in Philosophy (January 1984, pp. 99-110), discuss and compare Sterling's scientific approach to standard setting with the
=+1. Agency theory takes the view that the corporation is the locus or nexus of many competing and conflicting interests. List as many of these conflict-ing groups as you can and discuss in detail
=+22. If there has been a paradigm shift (scientific revolution) in accounting research but not in accounting practice, what may this signifiy?
=+21. Why does the decision-model orientation to research accord more closely with the standard-setting function than any of the other research directions?
=+20. What is the difference between "accounting theory" and "accounting research?"
=+19. Of the following decision-model advocates discussed in the chapter(Chambers, Sterling, Solomons, Bell, and Ijiri), which one stands out as most unlike the others?
=+v18. Why do you think the term "deprival valuc" has been used to describe this particular replacement cost concept?
=+Which of the directions of accounting research discussed in the chapter does Heisenberg's uncertainty principle relate to most closely?
=+17. The "uncertainty principle" of the famous physicist, Werner Heisenberg, states that physical phenomena cannot be precisely measured because the very act of measuring affects the phenomenon
=+16. What are the two principal underlying assumptions of agency theory(positive accounting research)? Criticize their role in constructing a theory of accounting.
=+15. What is the relationship among scientific method, accounting research, and accounting policy making?
=+14. Why, in practical terms, is it impossible to separate deductive and induc-Live approaches to theoretical reasoning?
=+13. "For a discipline to become a science, the results of experiments and research must be exact." Do you agree with this statement? Discuss.
=+12. What is the major difference in orientation between positive accounting theory and more overtly normative theories, such as the valuation approaches discussed in Chapter 1?
=+11. If Watts and Zimmerman are correct that managers of very large firms oppose accounting standards that would raise their income and favor those that would lower it, what policy implications
=+10. Why might the managers of very large firms be against accounting stan-dards that would increase their reported income and be in favor of those that would lower their reported income?
=+9. What are some of the pitfalls of empirical research?
=+8. Several occupations within two of the aforementioned disciplines are listed here. Which do you think come closest to being scientific?Accounting researcher Chief accountant for an industrial
=+7. Of the four disciplines in the following list, which do you think qualify as sciences and which do not? State your reasons very carefully.Law Medicine Cosmetology Accountancy
=+6. Several years ago an author stated that corporate income could be sci-entifically ascertained, but any type of adjustment for inflation would be pure folly because measurements would tend to
=+5. A frequent argument is that inductive reasoning is value-free because it simply investigates empirical evidence. Yet some charge that it is not value-free. What do you think is the basis for
=+4. In accounting, deductive approaches are generally normative. Why do you think this is the case?
=+Why do you think it failed to make an accurate prediction?
=+3. In 1936 the United States was still suffering from the Great Depression.During the presidential election campaign, an extensive survey of voter attitudes was undertaken to find out whether the
=+ What is your assessment of his conclusion?
=+b.Accounting professors have become more interested in research that is abstract and not practical than used to be the case.He therefore concluded that accounting students are not as well pre-pared
=+. Accounting professors used to do more consulting with accounting-practitioners than they do today.
=+2. An individual who was appraising accounting education had the fol-lowing premises (assumptions):
=+1. Do you think that the work of a policy-making organization such as the FASB or the SEC is normative (value-judgment oriented) or positive(oriented toward value-free rules)? Discuss.
Who are creditors?
What is residual income? Abnormal earnings? Economic profit? EVA2
What is the efficient-markets hypothesis?
Why is the efficient-markets hypothesis being challenged?
As an investor, how would you react to a company changing its inventory accounting from FIFO to LIFO2 Why?
Lev talks about the low correlation between earnings and stock returns. Ou and Penman discuss the possibility of making abnormal returns based on published financial data. Are these papers in
What is post-earnings-announcement drift?

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