Chapter 1 WWW Cases
Case 1-7 International Issues
Many companies have a significant amount of sales in foreign markets.
Required:
Compare the current period sales and net income from U.S. and non-U.S. sales for the following companies. Note any significant differences between the companies. Financial statements can be located on the company websites given. Which company has the largest portion of its sales in the United States? Which has the largest portion of its profits in the United States?Company / Web site
Ford Motor Company /
General Motors Corporation /
DaimlerChrysler Corporation /
Case 1-8 International Accounting Standards
Microsoft Corporation presents its income statement in a variety of formats using both the currencies and the accounting practices of other countries in the “Analysis Tools” area of the investor section of their website ( Compare the U,S., Canadian, UK, and Australian income statements. What features of the non-U.S. statements do you think are improvements on the U.S. statements? What features did you find to be confusing?
Case 1-9 Economic Consequences
In the webpage articles accompanying Chapter 1, Steven Zeff introduces the concept of economic consequences.
Required:
a. Define the term “economic consequences.”
b. List the ten reasons why Zeff contends that economic consequences have become a policy issue.
c. Discuss the implications of the economic consequences movement for the FASB.
Financial Analysis Case
Each chapter contains a financial analysis case. For each of these cases, you will be asked to apply some of the principles of financial analysis that were introduced in the various chapters. For Chapter 1 the first assignment is to pick a company to analyze for the entire semester. It is suggested that you choose a Fortune 500 manufacturing or merchandising company so that all of the ratios discussed in subsequent chapters can be calculated.
Required:
After choosing your company, log onto the SEC Edgar Form Pick website ( Type your company name in the company name box and find the latest 10-K report for the company you have selected. Answer the following questions:
a.What is the company’s conformed name?
b.What is the company’s standard industrial classification?
c.What is the company’s state of incorporation?
d.What is the company’s fiscal year-end?
e.What is the company’s business address?
f.What is the company’s telephone number?
g.On which stock exchange(s) is the company’s stock listed?
h.Summarize the company’s business operations as discussed on the Cover Page in part I of the company’s 10-K.
i.Who are the company’s major competitors? (Found under competitive position in part I.)
j.Choose two of the company’s competitors to use for comparative analysis purposes and print the latest 10-K reports for these two companies. You will need these reports for the cases in each of the remaining chapters.
Chapter 2 WWW Cases
Case 2-13 FASB Exposure Drafts and Emerging Issues
Visit the FASB's home page on the World Wide Web (
Required:
a. Review recently posted FASB Documents and Information to determine if any important new initiatives are being considered by the FASB.
b. What exposure drafts are currently outstanding?
c. What issues are being considered by the Emerging Issues Task Force?
Case 2-14the FASB’s Mission and Processes
Visit the FASB's home page on the World Wide Web (
Review the “FASB Facts” section of its website. In particular, read through the sections “Facts about FASB—Mission & Structure of the Board” and “FASAC—Financial Accounting Standards Advisory Council.”
Required:
a. Summarize the mission of the FASB in one or two paragraphs. What do you think about the FASB’s mission? Is it too broad; is it too vague, do you think the mission is achievable?
b. How effective do you think the FASB’s processes are? Do you think they will focus on the right issues on a timely basis? Do you think that all relevant parties will be heard in their process?
c.Summarize the current membership of the FASAC including the group’s mix of gender and type of organization they represent. Do you think this group is adequately diverse in order to allow all relevant parties to be heard?
Case 2-15FASB Recent Additions
Visit the FASB's home page on the World Wide Web (
Required:
Review the “Recent Additions” section of the FASB website. Pick two of the items presented and (1) summarize the items and (2) provide your own opinion about the items and how you think the FASB should handle any issues that are presented.
Case 2-16 Judging the FASB
In the webpage articles accompanying Chapter 2, Dennis R. Beresford asks how the FASB should be judged in light of the accounting for stock options proposal, presents arguments for public sector and private sector accounting standards setting, presents some criticisms and strengths of the FASB, and makes some recommendations on how the FASB might achieve its mission.
Required:
Briefly summarize each of these issues.
Case 2-17Analyzing the Conceptual Framework
In the webpage articles accompanying Chapter 2, David R. Koeppen discusses the FASB’s Conceptual Framework project and asks if it is sufficiently complete to be applied to situations where accounting choices must be made. He goes on to discuss a four-tiered model from the American Accounting Association’s Committee on External Reporting.
Required:
a. Briefly summarize this model.
b. Describe how the Conceptual Framework relates to the four-tiered model.
Case 2-18Standards Setting
In the webpage articles accompanying Chapter 2, Cheri Reither describes how the FASB approaches an issue as it performs its standards-setting role.
Required:
a. What steps does the FASB take in order to accomplish its mission?
b. Describe the major steps the FASB takes in considering an agenda project.
c. What are the fundamental recognition criteria that must be met before in item can be considered for recognition in the financial statements?
d. In addition to recognition, most projects require a certain amount of disclosure. What are the four major purposes of disclosure?
e. How does the Board monitor the capital markets effects or economic consequences of its standards?
Case 2-19 Assessing the FASB
Gregory J. Jonas and Jeannot Blanchet propose a tentative framework to use in satisfying Statement on Auditing Standards No. 61's requirement to assess the quality of an entity's accounting principles as applied in its financial statements.
Required:
- Summarize the authors' description of the components of the financial reporting process
- How do the authors classify previous efforts to define the quality of accounting and financial reporting?
- Describe the author's proposed framework.
Case 2-20 User Focus in Standard Setting
Gregory J. Jonas and Stephen J. Young maintain that an insufficient user focus in the standard setting process in undermining the quality of business reporting.
Required:
- How do the authors define user focus and why do they believe that it is important?
- What evidence do the authors present that an there is an insufficient user focus in the standard setting process?
- Why do the authors believe users are under represented in the standard setting process?
- What goals to the authors suggest to improve the standard setting process?
Case 2-21 High Quality Accounting Standards
Arthur Levitt (the past Chair of the SEC) discusses the importance of High Quality Accounting Standards.
Required:
- What benefit does the author state that high quality accounting standards delivers?
- Why does the author indicate that the SEC is concerned with accounting standards?
- What does the author see as the three objectives that are necessary for international accounting standards to gain acceptance?
- What ultimate benefit does the author ascribe to high quality accounting standards?
Financial Analysis
Companies disclose the impact of new accounting pronouncements in the footnotes to their financial statements (Usually in the Summary of Significant Accounting Policies).
Required:
Search your company’s financial statements to determine the new accounting standards that affected their operations during the past year and summarize their effects.
Chapter 3 WWW Cases
Case 3-7 IASC Home Page
Log onto the World Wide Web and enter the International Accounting Standards Committee's home page.
Required:
a.What general categories of information are contained on the IASC's home page?
b.What current issues is the IASC reviewing?
Case 3-8 G4+1
The Canadian Institute of Chartered Accountants website contains information about the G4+1 ( Log onto this webpage.
Required:
a.The G4+1 periodically issues communiques. What information was contained in the last two communiques?
b.What position papers has the group published?
c.How many special reports has the group issued? What three special reports do you believe are potentially the most significant?
Case 3-9 G4+1
In the articles contained on the webpage for Chapter 3, Dennis Beresford discusses the G4+1.
Required:
a.Who are the members of this group? What is its purpose? What does its title mean?
b.The group originally started with about 40 members. What problems lead to the decision to form a smaller group?
c.Are the positions taken by the group binding on the organizations the members represent?
d.Where does the author see the group fitting into the internationalization of accounting standards?
Case 3-10 Possible FASB Reaction to Core Set of IASC Standards
In the articles contained on the webpage for Chapter 3, Stephen Zeff comments on how he believes the SEC will react to the IASC’s core set of standards.
Required:
What is the author’s conclusion? What is the rationale for this conclusion?
Case 3-11 IASC Standards to Become World Standards?
In the articles contained on the webpage for Chapter 3, Paul Pacter suggests that international accounting standards may become the world’s accounting standards by 2002 by addressing several questions.
Required:
For each of the following questions provide a summary of Pacter’s arguments.
a.Why not just national standards?
b.What’s happening in other countries?
c.Who are the holdouts?
d.What are the incentives for companies?
e.Is IOSCO endorsement a sure thing?
f.If the IOSCO says yes, can the SEC say no?
g.What’s left for the IASC to accomplish?
Case 3-12Will the IOSCO Accept the IASC’s Core Set of Standards?
In the articles contained on the webpage for Chapter 3, Warren McGregor discusses how the IOSCO will go about deciding whether to accept the IASC’s core set of standards.
Required:
a.Why do many countries wish for the IASs to be accepted by the SEC as acceptable for listing in U.S. securities exchanges?
b.The author indicates that the IASC’s proposed new structure is a three-tiered system. What is this system and what does the author state as the rationale for this system?
c.The authors asks: Who are the important players in international accounting standards setting and what are their present positions?
d.What is the author’s conclusion regarding the IOSCO’s acceptance of the standards and what is the predicted likely outcome?
Case 3-13The IASC’s Comparability Project
In the articles contained on the webpage for Chapter 3, S.E.C. Purvis, Helen Gernon, and Michael Diamond discuss the IASC’s comparability project.
Required:
a.What level of compliance did the authors find with the standards in existence at the time the articles were written?
b. What requirements for success did the authors identify?
Financial Analysis Case
GAAP vs. International Accounting Standards
Required:
Find a foreign company that is selling securities in the U.S. securities markets and comment on the change in net income that was caused by changing from the company’s domestic accounting standards to U.S. GAAP.
Chapter 4 WWW Cases
Case 4-11Agency Theory
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 debtholders.
c.What strategy might debtholders utilize to counter potential adverse agency effects?
Case 4-12 Tinker vs. Solomons
In the webpage readings for Chapter 4, Tony Tinker and David Solomons debate the accountant’s role in providing information to individual investors.
Required:
a.Summarize their arguments.
b.In your view, who has the more persuasive argument? Why?
Case 4-13 A World Characterized by Partially Efficient Markets
In the webpage readings for Chapter 4, J. Edward Ketz and Arthur Wyatt explore the goals and objectives of FASB in a world characterized by partially efficient markets by examining the following issues:
a.Stock market efficiency.
b.Other institutions for which stock market efficiency is not relevant.
c.Since the stock market is only partially efficient, what should be the FASB’s objectives?
d.Information efficiency and allocation efficiency.
e.Implications for the FASB.
Required:
Briefly summarize each of these issues.
Case 4-14Capital Asset Pricing Model
Log onto the World Wide Web and find three companies whose stocks are traded on the New York Stock Exchange. Compute a beta for the three companies by comparing the movement in their stock with the movement of Standard and Poor's 500 for five years. (For simplicity, track the percentage stock returns and the percentage return for the index on the first day of each quarter for the five-year period.) Hint: You can compute beta by using each of the company's quarterly returns as the dependent variable and the index as the independent variable in a regression analysis. Compare the betas of the three companies. What do these betas tell you about the relative volatility of the three stocks? Next, compute the betas for the three companies using the movement in the Dow Jones Industrials over the same period. Are the calculated betas the same? Why? Finally, look the companies in an investor service such as Value Line or Standard and Poor’s. What are the betas disclosed for the companies?
Financial Analysis Case
Compile information for your company to be used to perform a fundamental analysis (annual reports, quarterly reports, management’s discussion and analysis and information from the financial press).
Required:
a. Consult the Web to determine the current recommendation for your company’s stock from financial analysts. (A good source for this information is the Fortune Investor.)
b. Comment on the trend in earnings for your company and future expectations voiced by management.
c. Chart your company’s stock price for the past 12 months and compare it to changes in the Standard and Poor’s Index (Use another index if your company is in a specialized industry for which an index is published.)
d. Use the index chosen in part c to compute a beta for your company.
Chapter 5 WWW Cases
Case 5-10 Revenue Recognition
In the precious metal industry, revenue may be recognized when a precious metal is mined and refined.
Required:
a. Describe how this practice differs from the way companies typically recognize revenue.
b. Explain the reasoning behind recognizing revenue when a precious metal is mined and refined.
c. Explain the reasoning behind the typical practice for recognizing revenue.
Case 5-11 Criteria for Choosing an Accounting Model
In the articles contained on the webpage for Chapter 5, David Solomons discusses some criteria for choosing an accounting model.
Required:
Briefly summarize Solomons’ criteria.
Case 5-12 Capital Maintenance Concepts
In the articles contained on the webpage for Chapter 5, George Gamble discusses the following five capital maintenance concepts:
a. Financial capital maintenance
b. Purchasing power capital maintenance
c. Physical capital maintenance
d. Prospective income capital maintenance
e. Maintenance of the time value of capital
Required:
Discuss the definition, strengths, and weaknesses of each of these capital maintenance concepts.
Case 5-13 Economic and Accounting Concepts of Income
In the articles contained on the webpage for Chapter 5, Bert Mitchell contrasts the accounting and economic concepts of income.
Required:
Summarize the authorized findings.
Case 5-14 Presentation of Comprehensive Income
Log on to the World Wide Web and search for the annual reports of three domestic "Fortune 1000" companies and three international companies.
Required:
- Review the income statements of the three domestic companies
- Do the companies disclose items of other comprehensive income as defined by the FASB?
- For companies disclosing items of other comprehensive income, is a one statement or two statement approach used to disclose these items?
- Review the income statements of the three international companies. Do the companies present a Statement of Non-owner Movements in Equity?
Financial Analysis Case
Assess your company’s quality of earnings.
Required:
- Use the eight techniques outlined in the text.
- Assess the correlation between accounting income and economic income for your company.
Chapter 6 WWW Cases
Case 6-12Objectives of Financial Statements
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.
Case 6-13 Financial Analysis
Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies.
Required:
a. Review the income statements for the three domestic companies and answer the following questions for the last reporting year:
i. What income statement format does each company use?
ii. What are the basic and diluted earnings per share for each company?
iii. Have any of the companies disclosed accounting changes?
iv.Have the companies reported any discontinued operations for the last year?
b.Review the income statements for the three domestic companies and answer the following questions for the last reporting year: