Required: Identify which SEC report is the best place to find the following information.

a. Managements discussion of the financial results for the fiscal year.

b. Terms of the CEOs compensation and the total compensation paid to the CEO in the prior fiscal year.

c. Who is on the board of directors and are they from within or outside of the company?

d. How much are the directors paid for their services?

e. Results of operations and financial position of the company at the end of the second quarter.

f. Why a firm changed its auditors.

g. Details for the upcoming initial public offering of stock.

Historical Cost versus Fair Value

Financial statements are inexorably moving to a model where all assets and liabilities will be measured on the basis of fair value rather than historical cost.

Required:

a. Discuss the conceptual differences between historical cost and fair value.

b. Discuss the merits and demerits of the two alternative measurement models.

c. What types of assets (or liabilities) more readily lend themselves to fair value measurements?

d. What are the likely effects of adopting the fair value model on reported income?

Accrual Accounting Measurement Error

Accrual accounting requires estimates of future outcomes. For example, the reserve for bad debts is a forecast of the amount of current receivables that will ultimately prove uncollectible.

Required:

Identify and explain three reasons why accounting information might deviate from the underlying economic reality. Cite examples