Question 1
Which one of the following statements is not correct regarding financial accounting and management accounting? O a. Management accounting reports need to be audited to verify their accuracy unlike financial accounting reports which do not need to be audited. O b. Both financial accounting and management accounting involve the use of accounting information. O c. None of the given answers O d. Management accounting information emphasize supporting decisions that affect the future unlike financial accounting information, which focus on the consequences of past activities of the organization. Financial accounting needs to follow specific set of rules called accounting standards unlike management accounting O e. S PAGE
Question 2
3. How much will you need to invest today at 10% to have $10,000 six years from today?
A. $7,050
B. $17,715
C. $5,645
D. $5,584
4. Calculate the present value of $216,000 to be received in seven years if the discount
rate is 16%.
A. $73,159
B. $61,051
C. $241,920
D. $76,421
5. Use an interest rate of 14% to calculate the present value of $829,000 which will be
received in 15 years.
A. $116,143
B. $60,601
C. $773,733
D. $552,667
Question 3
Write a memo that provides an explanation about the differences in accounting for proceeds from the issuance of convertible bonds and of debt instruments with separate warrants to purchase common stock. Also, explain the underlying rationale for the differences and the arguments that could be presented for the alternative accounting treatment. Accounting treatment Accounting treatment is the way expense, revenue, and other accounting items are recorded in the books of accounting. Accounting treatment differs as per which method a company adopts for accounting, such as cash or accrual.
Answer to question 1
Step 1 Meaning of Financial and Management Accounting
Financial Accounting – This is a branch of accounting under which business transactions are recorded and presented in a structured form so that they can be used for stakeholders of the business to make decisions.
Management Accounting – Management accounting is done in order to make business decisions. Management accounting is mostly concerned with internal stakeholders of business. This help managers to analyze and interpret accounting and operational information to make prompt business decisions.
Step 2 Incorrect Statement with regard Financial and Management Accounting
Now we will discuss each option to find out the incorrect option
a) It is pertinent to note that Financial Accounting records need to be audited so that they provide a true and fair view .
Management Accounting records are also audited it most places so that business decisions are taken in a timely manner
Hence this is an incorrect statement to say that financial accounting records need not be audited
b) Management accounting and financial accounting are both branches of accounting that use underlying accounting records of the entity to make business decisions. However, management accounting not only uses accounting information but also operational data
Hence this statement is correct
d) Financial accounting is solely based on analyzing historical financial transactions. Proactive decisions cannot be taken under financial accounting. However, management account helps in making support decisions that are made by the top management so that business can perform strategically in future
Hence this statement is correct
e) Management accounting does not have any accounting standards however financial accounting need to be made using a set of rules as mandated by the accounting standards boards
Hence this is a correct statement
hence option -A contains an incorrect statement
Answer to question 2
Step 1
SOLUTION-
FORMULA= X*(1+R)^6
HERE,
N= LIFE = 6
R= INTEREST RATE =10%
X= INVEST TODAY = $10000
Step 2
BY PUTTING THE VALUES IN THE FORMULA,
$10000=X*(1+0.10)^6
$10000 = X*1.771561
X= $10000 / 1.771561
X= $5644.739 OR $5645
Step 3
SO THE CORRECT OPTION IS C-
$5645
Answer to question 3
Memo
To-Person A
From- Person B
Date- DD/MM/YY
Subject- Differences in accounting for proceeds from the issuance of convertible bonds and of debt instruments with separate warrants to purchase common stock
The convertible bonds and the stock with separate warrants differ.
The convertible bonds are always considered a liability whereas the stocks are not as it has an additional right attached to it as equity. In the accounting treatment of convertible bonds, the proceeds are allocated to the debt, the premium, and the discount account. In the case of warrants, the proceeds from its sale are allocated between the underlying stocks at the fair value.
In convertible bonds, the conversion makes sense of economic only when the conversion is generating profit. The convertible bond is converted at the price of the face value of the shares. In the case of separate warrants, as the price of stocks increases, the warrants prices also increase.