Question 2 (ILOs: A1, A2) - 15 points a. The following quote which was released in the News on 14 August 2012: "Facebook Stock Price Drops Due to Accounting Not Valuation". was "Why are shareholders suing Facebook? Totally separate from the Nasdaq issues, there's a regulatory investigation beginning into how Facebook and its bankers handled sensitive financial information. A group of Facebook shareholders filed a lawsuit in a New York district court on Wednesday, alleging that important information about Facebook's financial outlook "selectively disclosed" to big banks ahead of the Initial Public Offering. It's odd that four different banks would cut their estimates to similar sums in a short timeframe, and it raises the question of whether small shareholders were left out of back-door conversations. More specifically, the lawsuit alleges that Facebook told analysts at its underwriters "to materially lower their revenue forecasts for 2012." REQUIRED: Write a short paragraph (50 80 words) on the importance of financial statements and reports to the users of financial statements. (5 points) b. Read the above 'News article', and identify the accounting principles that Facebook violated. Explain your answer. (5 points) c. Identify the following concepts of the conceptual framework of accounting. (5 points) Case Type of Concept Answer Ahlia Restaurant was formed in 1967. It Principle purchased a building soon after in 1970 for BD 20,000, Total, some 50 plus years later, Ahlia's is still in business The original building is solo the REQUIRED: Write a short paragraph (50 - 80 words) on the importance of financial statements and reports to the users of financial statements. (5 points) b. Read the above 'News article', and identify the accounting principles that Facebook violated. Explain your answer. (5 points) c. Identify the following concepts of the conceptual framework of accounting. (5 points) Case Type of Concept Answer Ahlia Restaurant was formed in 1967. It Principle purchased a building soon after in 1970 for BD 20,000. Total, some 50 plus years later, Ahlia's is still in business, The original building is still on the balance sheet for BD 20,000 even though the current fair market value of the building is well over BD 200,000. XYZ company has two business Assumption divisions, a hotel and an auto- dealership. The expenses of hotel division are separated from the auto- dealership Manama company provides monthly Principle accounting services for clients. Ali, a client pays in advance for the entire year on January 2. Manama company records revenue each month through December, as services are rendered A media company has very talented, Assumption skilled and passionate designers and animators. The company cannot record them as their assets and cannot be expressed in Bahraini Dinars. Ahlia company should list the loans Principle along with terms, maturity dates, current portions, and collateral obligations attached to the loans in the notes of the financial statements. This gives investors and creditors can make their decisions much more easily
