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Explain how the separation of ownership and control in American corporations might lead to poor management.
Do you think the lemons problem would be more severe for stocks traded on the New York Stock Exchange or those traded over-the-counter? Explain.
Describe the general findings from capital market research concerning the information content of accounting numbers and the effects of alternative accounting policies.
What do we mean when we say that capital market research involves a joint test of both market efficiency and the model used to estimate abnormal returns?
Can a person with rational expectations expect the price of a share of Google to rise by 10% in the next month?
Lee (2001) rejects the "naive view" of market efficiency. Explain. If Lee is correct, what are the implications for capital markets research in accounting?
What are abnormal returns (AR) and cumulative abnormal returns (CARs)? What do they have to do with research in accounting? What do they have to do with accounting standards?
The Mead Company uses a perpetual inventory system and engaged in the following transactions during the month of May: Record the preceding transactions in a general journal.
Prepare an analysis that explains what happened to ABC Company. How can a firm show increasing net income but a decreasing amount of cash?
Why do you think rules exist that restrict auditors from investing in companies that are audited by their firms? Why do you think PricewaterhouseCoopers took such extreme steps in response to the SEC
What are some limitations of capital market research?
Calculate the cash provided/used for each cash flow category. Comment on the creditworthiness of Walters, Inc.
Which investment would you prefer? Why? Round your percentage answer to two decimal places. What other factors should you consider before making either investment?
If investors are well diversified (e.g., own several hundred stocks), will they have a greater or lesser need for accounting information? What does this say about diversification?
These items are taken from the financial statements of Victory Co. at December 31, 2012. Prepare a classified balance sheet. Assume that $13,600 of the note payable will be paid in 2013.
What is the advantage of being well diversified? Is there a downside? Why or why not?
What is meant by "information content," and how does capital market research determine the information content of accounting numbers?
Why does the concept of market efficiency (with respect to information) have no necessary relation to the quality of accounting information? Why is this distinction important with respect to accoun
What is clean surplus accounting? What is its role in linking dividends and abnormal earnings?
The photographic analogy for a balance sheet is a snapshot, and for the income statement and the statement of cash flows it is a motion picture? Explain.
Clint's Stonework Corporation was organized on January 1, 2011. On the basis of the data given, prepare a statement of retained earnings for 2012. Show computations.
What are some advantages and disadvantages of using residual income (including economic profit and EVA) for performance measurement?
What is residual income? Abnormal earnings? Economic profit? EVA?
Why do we sometimes say that the dividend discount model is actually an earnings model? How do Lintner's findings relate dividends and earnings?
Besides the primary investor-creditor group, what other user groups could claim to be stakeholders in the firm? How might their information needs be the same as the primary investor-creditor group?