1.How did Sprouse and Moonitz describe continuity? 2.Given the presumption of continuity, if you are planning to buy a business, would the historical cost of the company's assets be relevant to your decision to invest? Explain. If your answer is no, what asset values would berelevant to your decision to invest? 3.If a company is bankrupt and plans to liquidate its assets, can continuity still be presumed? Explain. If your answer is no, how do you think the lack of continuity should affect the measurement of assets reported in a company's balance sheet?
1. Your company is using the building as a plant that is producing automobiles. 2.Your company is not using the building but plans to sell it. Explain how the building meets the definition of an asset. 3. Your company is not using the building but plans to remodel it so that it can be used as a plant to produce automobiles. Case 2-6 Measurement and Reporting Gabel Company spent money to train its employees so that they can be productive workers. Such expenditures are often referred to as investments in human capital. Required: 1.Do you think that Gabel Company's trained employees meet the definition ofan asset? Explain. In your answer, discuss the characteristics of an asset and whether you think they meet each of those characteristics. 2. Most accountants would say that human capital is valuable but that it is difficult, or even impossible, to measure the value of human capital. Given that you cannot determine an amount to place a value on the Gabel Company's employees, but you think that they are assets, what would SFAC No. 5 tell you to do? Should you report them as an asset in the company's balance sheet? Explain. 3. If a value can be estimated for Gabel Company's trained employees, 1.Would that value be more relevant or more reliable to a prospective investor? Explain. 2.Would the company's assets reported in its balance sheet be more representationally faithful if they include the human capital than they would be without reporting an amount for the employees? Explain. 1. If both companies' bonds are due in ten years, what factor(s) might make the bond market value the Company A bond at an amount greater than the Company B bond? If so, would Company A have a higher credit rating than Company B? If so, would the market rate of the Company A bond be higher than the market rate of the Company B bond? Explain your answers to this question, referring to the guidance found in SFAC No. 7 .
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