Ch 19 Practice problem with solution

Ch 19 Practice problem with solution - Ch 19 Practice...

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Ch 19 Practice problem with solution 1. Publicly traded firms must prepare audited financial statements according to generally accepted accounting principles (GAAP). How do comparability problems arise? Many accounts may be valued by more than one generally accepted accounting principle. As a result, firms often select the GAAP that presents the firm in the most attractive position. Thus, the analyst trying to compare firms using different GAAPs must be aware of these differences and make his or her own adjustments of the financial statements in order to determine which firm is the more attractive investment alternative. Generally accepted accounting principles for inventory valuation and depreciation are two of the more common areas where comparability problems may arise. Feedback: This question is designed to ascertain whether or not the student understands whether the analyst merely takes financial statements at "face value" or whether the analyst must perform considerable additional work with the financial statements in order to value the firms. 2 . In an increasingly globalized investment environment, comparability problems become even greater. Discuss some of the problems for the investor who wishes to have an internationally diversified portfolio. Firms in other countries are not required to prepare financial statement according to U.S.
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This note was uploaded on 01/26/2009 for the course FBE 441 taught by Professor Callahan during the Fall '07 term at USC.

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Ch 19 Practice problem with solution - Ch 19 Practice...

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