Generally Accepted Accounting Principles and Total Stockholders Equity

Week One Discussion Questions • How would you describe the entries to record the disposition of accounts receivables? What is their function? • How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method? • Pendergrass Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain. • What are the basic issues related to accounting for intangible assets? • Why would you select the percentage of sales method for calculating doubtful accounts instead of the percentage of receivables method? Is it appropriate to use a hybrid of the percentage of sales and the percentage of receivables methods of calculating the allowance for doubtful accounts? Do the generally accepted accounting principles allow for using both methods at the same time? Why? • What is the difference between revenue expenditures and capital expenditures during a useful life? Are there similarities? DQ: • What are the differences between revenue expenditures and capital expenditures? Explain the entries of each. Week Two Discussion Questions What are the differences among valuation, depreciation, amortization, and depletion? Is it appropriate to calculate depreciation using two different methods? Why? • Which depreciation method provides you with the highest depreciation expense in the first year? Why? • What types of industries have unearned revenue? Why is unearned revenue considered a liability? When is the unearned revenue recognized in the financial statements? • Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Why?
What is the determining factor of whether a bond is sold at a discount, face value, or premium? • What is the straight-line method of amortizing discount and premium on bonds payable? Provide an explanation of the process. • How would you describe the accounting procedures for notes payable and accounts payable? Week Three Discussion Questions • Why does a company choose to form as a corporation? What are the steps required to become a corporation? What are the advantages and disadvantages of the corporate form of doing business? • Why is preferred stock referred to as preferred?
What are some of the features added to preferred stock that make it more attractive to investors? Would you select preferred stock or common stock as an investment? Why? • What are the different types of dividends corporations may issue? When should a corporation pay dividends? Do you prefer a stock dividend or a cash dividend? Why? • Why do corporations buy back their own stock? What does it tell you about the corporation? What effect does the purchase have on the price of a company’s stock? • Chen, Inc. purchases 1,000 shares of its own previously issued $5 per common stock for $12,000.

Assuming the shares are held in the treasury, what effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity? Chen, Inc’s treasure stock is resold for $15,000. What effect does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital, and (d) total stockholders’ equity? Week Four Discussion Questions • Why are companies required to prepare a statement of cash flows? Why is the statement of cash flows divided into three sections? What does each section tell you about a company’s operations? What are some common ratios used to analyze financial information? Which are the most important? What are some examples of how ratios are used in the decision-making process? • Two popular methods of financial statement analysis are horizontal analysis and vertical analysis. What are the differences between these two methods? • What are the differences between the direct and indirect presentation of cash flows? Why does the Financial Accounting Standards Board allow both methods? Which do you prefer? Why? • Why must preferred stock dividends be subtracted from net income in computing earnings per share?
Why is common stock usually not issued at a price that is less than par value? • What three conditions must exist before a cash dividend is paid? Contrast the effects of a cash dividend and a stock dividend on a corporation’s balance sheet. Week Five Discussion Questions • What is an example of a potentially unethical accounting situation? Why is the situation unethical? How do ethics affect a company’s financial results? • Do you think the Sarbanes-Oxley Act has made a difference in the ethical behavior of companies regarding their financial accounting? Why or why not?

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