ACC571 Case Response 4-Case 53

ACC571 Case Response 4-Case 53 - Case Response 4 Case...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Case Response 4 1 Case Response 4: Chapter 9 - Case 53 Strayer University Is Any Option that Mary Is Considering Acceptable under Generally Accepted Accounting Principles? Why or Why Not?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Case Response 4 2 Yes, the option three that Mary is considering is acceptable under generally accepted accounting principles. The reason why option three is acceptable under GAAP will be discussed as follows. Mark-to-market Accounting Complying with GAAP Mark-to-market accounting, also called fair value accounting. Statement of Financial Accounting Standards (SFAS) 157 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” (Power, 2010, p.199). That is, mark-to-market accounting is the practice of accounting that values certain assets and liabilities at their current market value. Mark-to-market accounting has been a part of the generally accepted accounting principles (GAAP) since the early 1990s, and has been used increasing since then (Campbell, Owens-Jackson, & Robinson, 2008). The Financial Accounting Standards Board (FASB) released SFAS No.157, Fair Value Measurements, which provides significantly more comprehensive guidance to assist companies in estimating fair values. SFAS 157 contains essentially all of the current GAAP guidance regarding establishing a framework for fair value measurement, making the definitions of fair value, and expanding disclosures about fair value measurements (Trussel & Rose, 2009). In addition, this standard was established to increase comparability and improve the relevance and reliability of fair value measures (Campbell, Owens-Jackson, & Robinson, 2008). The Reason of Using Mark-to-market Accounting In option three, company switches to mark-to-market accounting for some of the yachts in progress so the company could recognize all of the profit when contracts with other clients are signed. Since fair value always is higher than original price paid or received, this action will improve the company’s revenue and thus could recognize the profit when contracts with other
Background image of page 2
Case Response 4 3 clients are signed. As business environments are changing rapidly and become increasingly volatile, the financial statements of company should portray the underlying economic reality of the company rather than the summary of past transactions. Mark-to-market financial reporting may be less reliable due to the subjectivity of certain measurements, but it could provide much more relevant and meaningful information about financial assets and liabilities to the users, as compared to values based only on their historical cost. For example, financial disclosures that use fair value provide investors with insight into prevailing market values. “Investors generally support measurements at fair value as providing the most transparent financial reporting of an investment, thereby facilitating better investment decision making and more efficient capital
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 9

ACC571 Case Response 4-Case 53 - Case Response 4 Case...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online