Questions and Answers of Intermediate Accounting principles and analysis

Define the following terms:a. Stockholders who “vote with their feet” versus “active” stockholdersb. Proxy fight; takeoverc. The “wealth effect” of rising (or falling) stock pricesd.
Suppose the exchange rate between U.S. dollars and the Swiss franc was SFr1.6 = $1, and the exchange rate between the dollar and the British pound was £1 = $1.50. What was the exchange rate between
Calculate the after-tax cost of debt under each of the following conditions:a. Interest rate, 13 percent; tax rate, 0 percent.b. Interest rate, 13 percent; tax rate, 20 percent.c. Interest rate, 13
As a manager, do you care more about your company’s market value, intrinsic value, or fundamental value? What about as an investor?
The president of International Microchips Inc. (IMI) made this statement in the company’s annual report: “IMI’s primary goal is to increase the value of the common stockholders’ equity over
A bus company is concerned about one of its routes, which serves a rural community. The management has decided to undertake a cost–benefit analysis to see whether it is worthwhile continuing with
The statement of financial position is sometimes seen as the least important of the three major financial statements discussed in this chapter. Can you see why this might be the case?
Singh enterprises, which started business on 1 January 2016, has a reporting period to 31 December and uses the straight-line method of depreciation. on 1 January 2016, the business bought a machine
You and a friend have decided to set up in business offering a bicycle delivery service in your local area. you feel that you can raise enough funds from your own resources to get the business going.
The London stock exchange has the power to suspend dealing in shares of businesses that have failed to comply with particular regulations. Why is this seen as a sanction for the business concerned?
Is limited liability a wholly good idea? Can you think of any arguments against it?
An established company listed on the London stock exchange has decided to raise further funds through an issue of shares. The board of directors has decided to issue preference shares rather than
There is a risk that managers will be inhibited from providing meaningful management commentaries. Instead, commentaries may be uninformative and written in a bland form. Can you think why managers
Why are accounting rules needed when preparing financial statements? Can you see any difficulties arising from harmonising accounting rules between different countries?
What are the main methods of creative accounting? how might the problem of creative accounting in developing countries be mitigated by harmonising accounting rules across national boundaries?
‘Profit should more or less equal the net cash inflow for a period?’ do you agree? explain your reasoning.
How are opportunity costs different from other costs mentioned in the chapter? Can you see a problem with using opportunity costs when making management decisions?
Shown below is an extract from next year’s plans for a business manufacturing three products, A, B and C, in three product cost centres.The skilled operatives employed in the cutting department are
Historic costs should never be used when deciding what costs are relevant to a decision. despite this, historic costs are the principal inputs for preparing the main financial accounting statements
Is it always reasonable to assume linear relationships between volume and sales revenue/variable cost, even where the activity is within a fairly narrow range?
Modern businesses tend to have higher levels of operating gearing than businesses had, say, 50 years ago. Why would this be the case?
One approach to break-even analysis can produce more than one break-even point. Why is this?
Consider the following businesses:● A pharmaceutical manufacturer;● A sugar refiner;● A picture framer;● A private hospital;● A coal-mining business;● An architect’s office;● A cement
At the beginning of the chapter, one of the uses to which managers might put full-cost information was identified as in setting selling prices. does this mean that businesses can add a profit margin
Will increasing the number of (overhead) cost pools in an existing activity based costing system ever be beneficial?
What potential problems should managers look out for in introducing a balanced scorecard approach to managing the business?
Most businesses seem to have a budget setting period towards the end of each year where the following year’s budgets are prepared (periodic budgeting). other businesses, however, have a
What do budgets have to do with control?
In the chapter it was mentioned that investment projects tend to involve additional amounts of working capital. It was also mentioned that at the end of such projects there is an inflow of funds as
Evidence shows that the london stock exchange is an efficient market. Does this mean that the current price of a share in a listed business is the correct price?
Why are many businesses less effective than the best in their industry in controlling their working capital?
If a high level of financial gearing is capable of producing higher earnings per share outcomes for the equity holders, why do most businesses not take on very large proportions of borrowing?