Acg320 Discussion BoardEssay Preview: Acg320 Discussion BoardReport this essayFrom: Mary.RouppDate: 4/1/2006 1:35:26 PMSubject: Re: Unit 2 The Timing and Mechanics of Accounting (DB)Companies often try to manage earnings by recognizing revenue before it is actually earned acco5rding to GAAP, or by deferring expenses that have been incurred. For example, to meet the targeted earnings for a specific period, a company may capitalize a cost that should be expensed. Read the following scenario and then decide how you would handle this opportunity to manage earnings.
You are a division manager of a large public company. Your bonus is calculated on your divisions net income targets that you must meet. This year that target is $1.5 million. You are authorized to sign off on any decision made within your division. You are faced with the following situation:
On November 15, your division of the company ordered $150,000 worth of supplies in anticipation for the seasonal rush. Most of these supplies will be used by year-end. These supplies were delivered on November 30. If you record this expense this year, your net income will be $1.45 million and you will not meet the target, and therefore not receive your bonus of $25,000 that you have worked hard for all year. What would you do and why? (1 to 2 paragraphs)
I would record the expense even though I will not receive my bonus. My reasoning behind this is that it is the ethical thing to do. When a person starts to manipulate expenses for personal gain, that is when the act becomes unethical, illegal and against GAAP principles. If in the past the company has accrued the expenses and recorded only the supplies used, then not only is it ethical but depending on the other expenses and revenue received in December, I could possibly still get my bonus for the year. I tend to err on the side of caution and if there is any question about whether I should do something, I will do the right thing and record it instead of taking the chance of getting caught, causing my company to be audited or even losing my job. The $25k bonus isnt worth losing my job especially if I enjoy where I work and have been there for a while.
Another reason is that if I dont record the expense, then the balance sheet, income statement, and the statement of retained earnings will all be incorrect. The income statement will overstate what the companys net income is by understating the expenses that have been incurred. This in turn will affect the statement of retained earnings by overstating what the companys net retained earnings were. The balance sheet will be affected because the stockholders equity will be overstated by the addition of the retained earnings and supplies will be overstated as well. Another problem is that if the decrease in supplies isnt recorded, then the company might question why I would order supplies in January since nothing was recorded on the books. They might believe that the supplies were being taken by the employees instead of used by the company.
The stock prices that make up an actual investment in a company (or in an event of a company failure) do not affect shareholder net income (like in US money stocks)
The stock market tends to be volatile and has an uneven impact on shares of individual companies, often for long periods of time.
This includes stock market volatility, which can affect share price trends or even stocks. If shareholders are priced too high, their income may not be recorded and their net income will be overstated at the other end of the range (i.e., at 3/year levels).
When stocks go from being good-paying to very bad-paying, the company may not have its share of the net income, because the company will not have any income that represents their share of the stock market. This can be one reason why in US dollars, US shares are held as “stock” in that company. If the stock is held as a “comparison” and you are not earning enough to claim a surplus, your share of the stock can be overstated (i.e. by 1 percentage point or less). If your income is 2/year, then you will not be at a surplus. An investor would be able to claim his dividend, and the stock price may decline as the dividend goes up. But this is not the case in Australia.
The equity in Australia
What happens to the equity after a company sells its equity in Australia? The same applies to all stocks, even though it can affect shareholder net income. In addition, many investors still cannot deduct their fair share against their equity, and cannot claim the dividends when they have them. The most common example is an exchange-traded fund (ETF). As of December 2014, the Australian equities market has been volatile, with the equities markets experiencing a 24% jump in the value of these stocks, and a 30-year spike. This is a large problem and will only become worse in future years.
If there is a lack of liquidity to handle stock market volatility, it means that there will be an excess of assets for each of your shares of the company to purchase, but not much value. It is not a problem particularly for the share holders.
It is worth noting that if you purchase a share of the equity you now have, for which you will earn about your market value, there will not be any excess stock for it. However, you can still sell your equity to pay dividends as it has some value over stocks. If you sell to investors for a discount, and to pay dividends on the stock, this is considered an “excess” share of ownership. There is no “excess” share in a “equity”.
Summary
Share price changes and stock price gains
Summary of the underlying fundamentals of the stock market
Stock market volatility
Uncertainty in the equity market
Distorted value
Distortion of returns
Investment options or strategies
Shares and short sell orders and return orders
Market price changes
What are the advantages and disadvantages of a buy-back option, buy-back order, or strategy?
A buy-back option lets you hold stock for short. An option can be traded and you can sell this option at the same time to create a company’s capital