An Introduction to Corporate Accounting

Questions:

1. What is the research question of interest to the authors of the paper?

2. Is this an interesting question? Why?

3. Why is this question related to or of interest to Accounting?

4. What is the source of tension in the paper that requires research?

5. In what setting is this question examined?

6. What does the paper find?

7. What does the paper conclude based on its findings?

8. How convincing is the evidence presented in the paper? How valid are the results?

9. How does this paper contribute to the literature, and to our knowledge?

10. What are the implications of this paper?

Answers:

1. The research question that is present in the paper is that how accrual accounting is linked to the valuation of the equity, as well as goodwill of the firm. From the accounting perspective, this research is very helpful because this will help in recording the creation, as well as distribution of wealth. It is an interesting question because accrual accounting in the case of financial activities can be seen as straightforward.

2. The question is directly linked to financing activity and hence interesting. A financial activity considers assets, as well as liabilities that have perfect markets. The accounting measures can be conceptualized with the

3. The main aim of the paper is to shed light on the link that is present between the market value of a firm and the accounting data that concerns the operating, as well as financial activities. The major question is related to accounting and linked to financing activities. Accrual accounting is vital when it comes to the techniques of accounting. This is an important consideration because when it comes to financial activities, the book value equals the market value while it differs in case of operating activities (Ryan, 1986). This paper is important in the sense that it models how the market value of the firm links to accounting data that sheds light both on the operating, as well as on financing activities. Both these concepts are important in nature because they influence the evaluation of the market value of a firm that is a major function of the financial statements.

4. The model that is shown here begins from the assumption that the firm’s value of equity equals the NPV of the dividend that is expected and distributed to the equity shareholders. Overall, the model and its implication is complex in nature and creates a problem. The creation of wealth is mainly recorded with the help of the accounting system.

5. The question is evaluated with the help of three main facts. The initial being the value as it pertains to the realization that is anticipated. The second being the fact that how the value rests on the accounting data realization. The third set stress how the earning is connected to starting of the book values. The paper projects that in all the three methods, the conclusion depends on the manner to which the conservatism of accounting is maintained. The presence or absence of growth in the case of operating activities is relevant only when the accounting system is conservative in nature (Needles & Powers, 2013).

6. In this paper, the major stress is on the linear model where the dynamic of the information is specified and includes the book value, as well as abnormal earnings for operating purposes. The model is simple in nature and helps in derivation of closed forms that relates to market value. The model considers four main variables that are operating earnings, interest revenues, cash flow, as well as dividend (Paton & Littleton, 1940).

7. The main advantage of the paper lies in the fact that the accounting relations has been shown with the help of various models and formula that is user-friendly and justify the measurements that has been considered. Moreover, the models are the best fit because the activities of the firm are in the nature of financing or operating (Stickney et. al, 1986).

8. Overall, the paper shows reliance on the LIM dynamics and this paper serves a major purpose as the structure of the accounting satisfies the properties and establishes a relationship between value and the accounting numbers. The article has praised the framework because it ensures that wealth creation must be in tune with the wealth distribution and has been justified with the help of proposition one and other classical concepts of MM (Miller & Modigliani, 1961). The analysis is independent in nature and therefore, provides a clear-cut knowledge.

9. From the paper, it is observed that three concepts plays a leading role in the accounting variables and helps in derivation of the values. Firstly, the income, as well as balance sheet reconcile through the clean surplus relation. From this restriction, it can be said that the goodwill of a firm equals the present value of anticipated future abnormal earnings (Morgenstern, 1963). Secondly, the assessment establishes Millar and Modigliani concept of debt. Here, the borrowing capacity of a firm whether average or incremental yields zero NPV. Thirdly, the concept of cash flow is shown naturally if one witness the cash flow and operating earning difference.

10. From the discussion and overview of the paper, it is clear that accrual system of accounting is important, as well as vital when it comes to accounting. Various models have been proposed in order to have a clear-cut understanding (Stickney et. al, 1991). As per the study and discussion, it is evident that the linear model is best suited in this scenario.

References

Edwards, E.O. and. Bell, P.W 1961, The Theory of Measurement of Business Income, Berkeley, Califoniia:University.

Miller, M. and F. Modigliani 1961, ‘Dividend Policy, Growth, and the Valuation of Shares’, Journal of Business, no. 34, pp. 411-433

Morgenstern, O 1963, On the Accuracy of Economic Observations, Princeton: Princeton University Press.

Paton, W.A. and Littleton, A.C 1940, An Introduction to Corporate Accounting, Standards.Evanston, Ilhnois: American Accounting Association.

Ryan, S.G 1986, Structural Models of the Price to Earnings Relation: Mea.surement Errors in Accounting Earnings, Working Paper, Stanford University.

Stickney, C.P, Weil, R.L and Davidson, S 1991, Fmancial Accounting; An Introduction to Concepts, Methods, and Use. New York: Harcourt Brace Jovanovich.