Chapter 16 - Solution Manual

As such it provides a less meaningful measure of

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As such it provides a less meaningful measure of goodwill. Since we are reporting a consolidated entity, why not report the total value of its assets rather than adding together the fair value acquired by the parent company plus the noncontrolling interest’s share of the historical cost of those assets? WWW Case 16-8 The solution to this case is dependent upon the companies selected by the students. A recommended method of checking the students’ solutions is to require them to turn in their downloaded financial statements with their solutions. Financial Analysis Case Answers will vary depending on company selected CHAPTER 17 Case 17-1 The position that mandatory accounting and auditing standards inhibit contracting arrangements and the ability to report on company operations is an agency theory argument. This argument holds that regulators will be affected by external pressures, and will act to maximize their own utilities. This position was first advanced by Watts and Zimmerman in "Toward a Positive Theory of the Determination of Accounting Standards" the Accounting Review , January, 1978, pp. 113-134). They concluded that management will lobby on accounting standards based on its own self-interest. To the extent that management can increase either its level of incentive compensation, or its firm's share price via accounting standards, they are better off. Other factors affecting management wealth are taxes, regulation, political costs, information production and management compensation plans. A management position on a particular accounting standard depends on the size of the firm (which affects political costs) and whether or not the standard will affect earnings. They concluded that as long as financial accounting standards have potential effects on future cash flows, standard setting bodies will be influenced by corporate lobbying. Unknown Deleted:
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