Compiled list of problems Basic Concepts (1).docx

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Financial Accounting: Definitions, Environment, Concepts and Bases Case #1 – Financial Accounting Environment, Overview and Concepts 1. Describe the difference between the Securities and Exchange Commission and the Financial Accounting Standards Board. 2. Describe the difference between managerial and financial accounting. 3. How does financial accounting serve the public interest? 4. What are International Financial Reporting Standards and how are they different than US GAAP? Which standards must a firm follow in order to trade on the US stock markets? 5. Describe the recognition of revenues and expenses under a cash system and an accrual system. Describe and explain how the specific principles from the SFAC that allow us to record revenues and expenses under the accrual basis system. 6. What’s the fundamental difference between an expense and a dividend? How are they related? How does this impact the way in which we report these items on the financial statements (i.e. what accounts and financial statements are affected by an expense, by a dividend)? 7. Critical thinking question : A mortgage-backed security is an investment sold by investment banks to investors. The price of the security (a piece of paper entitling ownerships) is based on the underlying collateral (in this case, a mortgage loan or typically many mortgages together). If your company purchased a mortgage-backed security a. How would you classify and record it on the balance sheet of your corporation (asset, liability, stockholders’ equity)? b. What principle(s) (from characteristics of useful information or Statements of Financial Accounting Concepts) might you use to justify the value you assign it? Is this information reliable or relevant?
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