Below are 5 questions. Choose any 1 of the following 5 questions and answer it o

Question

Below are 5 questions. Choose any 1 of the following 5 questions and answer it on the following page(s)

Be sure to read the syllabus regarding writing style and format. For this question please use 1.15 spacing between lines.

Questions (Choose any 1 of the following 5) 500 words

1. The accounting for assets, both current and long-term, has changed significantly since the inception of the FASB. Discuss some of the primary changes in the accounting (measurement and reporting) for assets that the FASB has implemented.

2. The accounting for liabilities, both current and long-term, and equity has changed significantly since the inception of the FASB. Discuss some of the primary changes in the accounting (measurement and reporting) for liabilities and equity that the FASB has implemented.

3. Discuss the current state of accounting for leases, the strengths and weaknesses, and where improvement can be made. Be sure to discuss the off-balance sheet financing nature of operating leases. If you choose this question you may want to go to the FASB ASC website and look at “Proposed Accounting Standards Updates,” “2013,” “Leases Topic 842.” The information for accessing the ASC is given in the syllabus.

4. Discuss the theories of equity, specifically the proprietary, entity and residual equity theories. Be sure to include in your discussion which theory you believe best meets the theory of equity, that is best defines what equity is or should be.

5. The text authors point out that “accounting for income taxes has been a controversial financial accounting topic for many years.” Discuss the (1) controversies, (2) the resolutions, and (3) any unresolved or questionable areas related to the accounting for income taxes. For this question you may want to access the FASB ASC (information to access the FASB ASC is given in the syllabus) and look at “Proposed Accounting Standards Updates,” “2015,” “Income Taxes Topic 740,” Part II,” “Balance Sheet Classification of Deferred Taxes

Explanation / Answer

I would answer 4th question:

There are different type of theories few are explained as under:

1) Proprietary Theory:Under this theory, transactions and events are analysed, recorded and accounted for as to their immediate effect on the proprietors. Financial statements are prepared from the viewpoint of the proprietors and we calculate the net worth of them,The proprietary theory of accounting treats the owner of an enterprise as an extension of the firm itself. The accounting equation: (1) assets - liabilities = equity, proprietorship or net worth. We deduct outstanding debts from the assets. It is very useful for sole proprietors and partnership firm.

It can also be applied to companies. Shareholders are treated as owners whose net worth is determined by total equity. It takes preferred and common stockholders together as owners, and looks at the firm as an extension of all the owners.

Residual Equity: The common stockholders of the company take the greatest risk when they invest into a company. Therefore, they should have sufficient information about the company's financial standing and performance to make sound investment decisions, hence this theory is useful. This approach does not include holders of preference share capital in the proprietary group. Instead, dividends to preferred shareholders are deducted from net income before calculating residual equity holders’ dividend per share. Residual equity is the equity that remains after you subtract liabilities, including bond debt, and preferred stockholders' equity from the total owners equity.The accounting equation is  Assets – Specific Equities (=Liabilities + Preferred Stock) = Residual Equity.

So it takes into consideration only the equity shareholder and residual equity from them is calculated.

3) Entity theory:Under this theory, transactions are analysed as to their effect on the accounting entity as a whole. Financial statements are prepared from the viewpoint of the entity. The income statement and balance sheet is prepared to know the overall financial position andperformance of the entity as a whole. The theory says even though the investors own the firm, the company is a separate legal entity with its own interests and finances, and not just an extension of the owners' interests. Under the different varieties of entity theory the accounting equation Assets= Liabilities.

I beleive EQUITY THEORY best meets the theory of equity. A limited company is a seprate legal entity and the owner risk is limited to the money invested that is the shares purchased in case of the company. So the risk than vest with the company the maximum what shareholder looses is his investment.A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company

But in the case of sole proprietor or general partnership their liability is unlimited so in that case proprietory theory suits more. If your business incurs debts that it cannot pay from the profits, you are personally liable and responsible for payment. Creditors may sue you personally to satisfy the debt.Along with liability for debts, as a sole proprietor they also have personal liability for any injuries, that occur as a result of any acts of their business. They have more risk so this theory is better.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.