Criticisms of the EMH and the rational market theory were arising as far back as the early 1970s. These critics were noting events that could not be explained by the EMH. These unexplainable results were termed anomalies. Four basic types of anomalies have been identified: calendar anomalies, value (fundamental) anomalies, technical anomalies, and other anomalies. Contemporaneously with the identification of financial market anomalies, a new theory of financial markets arose that has been termed behavioral finance. Required: a. Discuss the four basic types of anomalies. b. Define the concept of behavioral finance. c. What are some of the most the most common cognitive biases in finance?
> IAS No. 8 states that when a Standard or an Interpretation specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item must be determined by applying the Standard or Interpretation and consideri
> In Phase B of the joint FASB-IASB financial statement presentation project, the Boards are planning to release a plan to recast financial statements into a new format. One possible result is the elimination of the current definition of net income. In its
> You are in charge of reviewing the classification of unusual items that have occurred during for your CPA firm during the current year. The following material items have come to your attention: 1. A department store incorrectly overstated its ending inve
> Discuss how a company’s primary financial statements are useful to potential investors who are trying to decide whether to buy stock in the company. Support your discussion by citing objectives outlined in the Conceptual Framework.
> The IASB outlined its requirements for the presentation of the income statement in IAS No. 1, “Framework for the Preparation and Presentation of Financial Statements” Required: a. What is the objective of IAS No. 1? b. What income information does IAS
> In 2007, the SEC modified its position on the Form 20-F requirement when it issued; “Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to GAAP.”
> Discuss the similarities and differences between the FASB and IASB conceptual frameworks with respect to the definitions of the elements of financial statements.
> The IASB framework for preparing and presenting financial statements defines assets as resources controlled by an enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise. This definition is similar
> In September 2015, the FASB proposed changing the definition of materiality in Chapter 3 of SFAC No. 8. Required: a. How did SFAC No. 2 define materiality? b. What is the FASB’s proposed new definition of materiality? c. This proposal was met with disapp
> The total owners’ equity is usually under a number of sub captions on the corporation’s balance sheet. Required: a. List the major subdivisions of the stockholders’ equity section of a corporate balance sheet, and describe briefly the nature of the amoun
> The International Accounting Standards Committee (IASC) was formed in 1973. In 2001 the IASC was replaced by the International Accounting Standards Board (IASB). Required: a. What was the purpose of the IASB? b. How does the IASC attempt to achieve these
> Chapter 3 of SFAC No. 8 identifies the qualitative characteristics of accounting information that distinguish better (more useful) information from inferior (less useful) information for decision-making purposes. Required: List and briefly describe these
> Five approaches to transnational financial reporting were identified in the chapter. Required: a. List some of the advantages and disadvantages of each approach.
> Discuss the structure of the FASB’s conceptual framework for financial accounting and reporting
> The advantages and disadvantages of harmonizing accounting standards were summarized in this chapter. Required: Expand on these advantages and disadvantages. [Hint: You might wish to consult John N. Turner, “International Harmonization: A Professional Go
> Team Debate: Team 1: Argue that a universally accepted theory of accounting is needed. Team 2: Argue that a universally accepted theory of accounting is not needed.
> Roper Corporation purchased 100 storage boxes for the office. The boxes cost $15 each and should last at least ten years. Each team’s arguments should be grounded on the Conceptual Framework, emphasizing the Objectives of Financial Reporting and the qual
> The authority to issue accounting pronouncements has evolved overtime. Required: a. Discuss the rule making bodies involved in issuing accounting pronouncements since the 1930s. b. SEC Accounting Series Release (ASR No. 4) allowed accounting principles
> The FASB has been working on a conceptual framework for financial accounting and reporting and has issued eight Statements of Financial Accounting Concepts. These SFACs are intended to set forth objectives and fundamentals that will be the basis for deve
> The FASB is the official body charged with issuing accounting standards. Required: a. Discuss the structure of the FASB. b. How are the Financial Accounting Foundation members nominated?
> The proprietary theory, the entity theory, and the funds theory are three approaches to accounting for equities. Required: a. Describe briefly each of these theories. b. State your reasons for emphasizing the application of one of these theories to each
> Company A and Company B each have a $10,000 bond outstanding. Required: a. If both companies’ bonds are due in ten years, what factor(s) might make the bond market value the Company A bond at an amount greater than the Company B bond? If so, would Compan
> Gabel Company spent money to train its employees so that they can be productive workers. Such expenditures are often referred to as investments in human capital. Required: a. Do you think that Gabel Company’s trained employees meet the definition of an a
> Your company owns a building that is fully paid for. Explain how the building meets the definition of an asset under each of the following scenarios. Required: a. Your company is using the building as a plant that is producing automobiles. b. Your compan
> Continuity is often cited as a basic accounting postulate that affects how a company presents information in published financial statements. Required: a. How did Sprouse and Moonitz describe continuity? b. Given the presumption of continuity, if you are
> Sprouse and Moonitz proposed that quantification is an element of the economic environment that is relevant for accounting. Required: a. Explain why Sprouse and Moonitz say that quantification is relevant. b. Discuss how the Sprouse and Moonitz discussio
> During the past several years, the FASB has attempted to strengthen the theoretical foundation for the development of accounting principles. Two of the most important results of this attempt are the Conceptual Framework Project and the Emerging Issues Ta
> Which Body Should Set Accounting Standards in the United States? Team Debate: Team 1: Argue that the SEC should set accounting standards in the United States. Team 2: Argue that the FASB should set accounting standards in the United States
> Should the Scope of Accounting Standards Be Narrowed Further? Team Debate: Team 1: Assume you are management. Argue against the narrowing of accounting choices. Team 2: Assume you are a prospective investor. Argue for the narrowing of accounting choices.
> The FASB ASC is now the sole authoritative source for all U.S. GAAP. Required: a. What are the major goals of the FASB ASC? b. How is the FASB ASC expected to improve the practice of accounting? c. What literature is now contained in the FASB ASC? d. Wh
> The FASB is the official body charged with issuing accounting standards. Required: a. Discuss the structure of the FASB. b. How are the Financial Accounting Foundation members nominated?
> On January 1, 2016, as an incentive to improved performance of duties, Recycling Corporation adopted a qualified stock option plan to grant corporate executives nontransferable stock options to 500,000 shares of its unissued $1 par value common stock. Th
> During the early 2000s, the role of accounting and the auditing profession changed, and several accounting scandals were uncovered. Required: a. What conditions caused accounting and the auditing profession role to change during this time? b. What major
> The nineteenth century witnessed the evolution of joint ventures into business corporations. Required: Discuss how the emergence and growth of the corporate form of business affected perceptions regarding the role of the accounting profession in financia
> At the completion of the Darby Department Store audit, the president asks about the meaning of the phrase “in conformity with generally accepted accounting principles,” which appears in your audit report on the management’s financial statements. He obser
> Some accountants have said that politicalization in the development and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term politicalization in a narrow sense to mean the influence by govern
> The Financial Accounting Standards Board (FASB) has developed a conceptual framework for financial accounting and reporting. The FASB has issued eight Statements of Financial Accounting Concepts. These statements are intended to set forth the objective a
> On October 2004, the FASB and IASB decided to add to their agendas a joint project to develop an improved and common conceptual framework that is based on and builds on their existing frameworks. Required: a. What is the goal of this project? b. List and
> General Motors and Ford use the last‐in, first‐out (LIFO) method to value their inventories. Honda (of Japan) and Daimler‐Benz (manufacturer of Mercedes‐Benz of Germany) use the first‐in, first‐out (FIFO) method. Under LIFO, recent costs are expensed as
> Under U.S. GAAP, property, plant, and equipment are reported at historical cost net of accumulated depreciation. These assets are written down to fair value when it is determined that they have been impaired. A number of other countries, including Austra
> The International Accounting Standards Committee’s Framework for the Preparation of Financial Statements identifies four primary qualitative characteristics. Required: a. Discuss the four qualitative characteristics identified by the IASB. b. Contrast an
> The capital asset pricing model illustrates how risk is incorporated into user decision models. Required: Discuss the capital asset pricing model, including systematic and unsystematic risk, β, the relationship between risk and return, how to avoid risk,
> Stock options are widely used as a form of compensation for corporate executives. Required: a. Identify five methods that had been proposed for determining the value of executive stock options before the release of SFAS No. 123R. b. Discuss the conceptua
> Current accounting for leases requires that certain leases be capitalized. For capital leases, an asset and the associated liability are recorded. Whether or not the lease is capitalized, the cash flows are the same. The rental payments are set by contra
> The FASB has issued SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions” (see FASB ASC 715), and SFAS No. 112, “Employers’ Accounting for Postemployment Benefits” (see FASB ASC 712). These pronouncements required companie
> Critical perspective research views accounting in a manner somewhat different from traditional accounting research. Required: a. What is critical perspective research? b. How does it differ from traditional accounting research? c. What are the three assu
> The study of the ability of individuals to interpret information is classified as human information processing research. Required: Discuss human information processing research. What is the general finding of this research? What are the consequences of t
> Agency theory provides an explanation for the development of accounting theory. Required: Discuss agency theory, including its basic assumptions, agency relationships, why the political process affects agency relationships, and why it does or does not ex
> Various research methodologies are available with which to study the development of accounting theory. Required: Discuss the deductive, inductive, and pragmatic research methods. Include in your discussion examples of accounting research that used each m
> The efficient market hypothesis is an extension of the supply and demand model. Required: a. Discuss the assumptions of the supply and demand model inherent in the EMH. b. Why is the securities market viewed as a good example of the supply and demand mod
> According to agency theory, the existence of debt imposes agency costs. Required: a. What are agency costs? b. Explain why an increase in debt would increase agency costs and what the resulting effect would be for debt holders. c. What strategy might deb
> What is fundamental analysis and what is its goal?
> Carrol, Inc., accomplished a quasi‐reorganization effective December 31, 2017. Immediately before the quasi‐reorganization, the stockholders’ equity was as follows: Common Stock, Par Value ………………………. $10 per Share Authorized issued and outstanding …………
> A Repo 105 is an accounting technique which is used by companies to improve the appearance of their financial statements. Required: Discuss Repo105 accounting
> Global Warming Company operates several plants at which limestone is processed into quicklime and hydrated lime. The Smokey Haze plant, where most of the equipment was installed many years ago, continually deposits a dusty white substance over the surrou
> An accountant must be familiar with the concepts involved in determining earnings of a business entity. The amount of earnings reported for a business entity is dependent on the proper recognition, in general, of revenue and expense for a given time peri
> Putnam, a construction company, enters into a contract to construct a commercial building for a customer on land owned by the customer for $1 million the contract also stipulated a bonus of $200,000 if the building is completed within 24 months. Putnam a
> Mosaic, a fixed-line communications company, enters into a contract with a customer to provide voice and data services for 24 months at a fixed charge of $100 per month. After six months, the customer decides to add TV services for an incremental fee of
> Woodlawn Hospital participates in the Medicare program and has agreed to accept Medicare’s rates as payment in full for services rendered to Medicare beneficiaries. It usually takes three years from the year that services were rendered for Medicare to va
> Morgan Company provides transportation to ski lodge customers to and from area lodging under a one-year agreement. Morgan is required to provide scheduled transportation throughout the year for a fixed fee of $250,000 annually. Morgan Company also is ent
> Logan Company sells computers to customers. The computers cost $1,000.00 and come with a one- year assurance warranty. Additionally, Logan offers an extended three-year service type warranty to customers for $99.00. During 2017 Logan sold 875 computers a
> Under FASB ASC 606, revenue is recognized when there is a performance obligation. Required: a. What is a performance obligation? b. Under what conditions does a performance obligation exist? c. When must multiple performance obligations in a revenue arr
> Albert Company manufactures specialized equipment. Albert Company enters into a $100,000 arrangement to purchase and deliver this equipment and provide implementation/installation services after the delivery. The level of effort to complete the implement
> For numerous reasons, a corporation may reacquire shares of its own capital stock. When a company purchases treasury stock, it has two options of how to account for the shares: the cost method and the par value method. Required: Compare and contrast the
> Ro It has been argued that by the time financial statements are issued, the market price of shares already reflects the information contained in them; hence, accounting information is not relevant. The arguments for both debate teams should address all t
> A comprehensive theory of accounting has yet to be developed. Team Debate Team 1: Present arguments that support reliance on positive theory to develop a general theory of accounting. Team 2: Present arguments that support reliance on normative theory to
> Proponents of critical perspectives research believe that mainstream accounting research relies on assumptions that are considered in a vacuum, which does not mirror reality. Team Debate: Team 1: Present arguments supporting critical perspective research
> SFAC No. 5 states that the concept of capital maintenance is critical in distinguishing an enterprise’s return on investment from return of its investment. Two concepts of capital maintenance are discussed: physical capital maintenance and financial capi
> Some accounting theorists believe that entry values should be used to measure current value, and others believe that exit values should be used instead. Team Debate: Team 1: Present arguments in favor of using entry values to measure current value. Team
> Economists and accountants agree that the concept of income is vitally important. However, the two disciplines disagree on what income is and how it should be measured. Team Debate: Team 1: Present arguments in favor of the economist’s view of the concep
> One reason accounting earnings might not be a realistic measure of economic income is the incentive and ability of business managers to manipulate reported profits for their own benefit. This may be particularly true when their company has an incentive c
> Keeping an asset implies reinvestment in the asset. Finance theory is consistent with the notion that reinvestment is at current value, or replacement cost. Such a decision is presumably based on comparing expected future cash flows that will be generate
> Joe Mason acquired land on which he will construct a new restaurant. A chemical plant had once occupied the site. Government regulations require Mason to clean up the chemical residue before building. The cost of the cleanup is material. Required: a. Und
> Among the principal topics related to the accounting for the property, plant, and equipment of a company are acquisitions and retirements. Required: a. What expenditures should be capitalized when equipment is acquired for cash? b. Assume the market valu
> Drake Company reported the following for 2017: Current assets…………………………………………….……… $87,000 Current liabilities ……………………………………..…………. 19,000 Revenues ……………………………………………….………… 450,000 Cost of goods sold ……………………………..…….……….. 220,000 Noncurrent assets ………………
> The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organized into five divisions and several principal offices. The primary objective of t
> Imagine that you have been hired as a consultant to give advice to the Palace Hotel. Consider the options facing the hotel based on the four attributes in the positioning charts (Figures 3.15 and Figure 3.16). What actions do you recommend for the Palace
> Choose an industry you are familiar with (such as cell phone services, credit cards, or online music stores) and create a perceptual map showing the competitive positions of different service providers in that industry. Use attributes you believe are det
> How are customers’ expectations formed? Explain the difference between desired service and adequate service with reference to a service experience you’ve had recently.
> Why do consumer’s perceptions of risk play an important role in choosing between alternative service offers? How can firms reduce consumer risk perceptions?
> Explain why services tend to be harder for customers to evaluate than goods.
> Describe search, experience, and credence attributes, and give examples of each.
> What is the difference between the linear compensatory rule and the conjunctive rule?
> Explain the three-stage model of service consumption.
> What is service quality? How is it different from customer satisfaction?
> Describe the relationship between customer expectations and customer satisfaction.
> What are the elements of a customer-driven services marketing strategy?
> How do the concepts of theater, role theory, and script theory help to provide insights into consumer behavior during the service encounter?
> Describe the difference between high-contact and low-contact services, and explain how the nature of a customer’s experience may differ between the two.
> What are “moments of truth”?
> What are the backstage elements of a. A car repair facility, b. An airline, c. A university, and d. A consulting firm? Under what circumstances would it be appropriate or even desirable to allow customers to see some of these backstage elements, and
> What are the five powerful forces transforming the service landscape, and what impact do they have on the service economy?
> What are the main reasons for the growing share 0f the service sector in all major economies of the world?
> What are the implications of the service–profit chain for service management?
> Why do the marketing, operations, human resource management, and IT functions need to be closely coordinated in service organizations?
> “The 4 Ps are all a marketing manager needs to create a marketing strategy for a service business.” Prepare a response that argues against this, and support it with examples.
> What is so special about services marketing that it needs a special approach?
> What is the difference between ideal capacity and maximum capacity? Provide examples of a situation where (a) The two might be the same and (b) The two are different.
> Describe the four broad “processing” categories of services, and provide examples for each.
> Explain how the concepts in Chapter 1 are relevant to the marketing of a religious institution, or a non-profit organization such as World Wildlife Fund.
