Accounting Principle homework questions - Coursework Example

Companies usually issue two different types of stock, common and preferred. The major difference between common and preferred stock is that common stock results in ownership for the buyer whilst a preferred stock does not. The common stock is traded within the stock market within a country, preferred stock, on the other hand are not traded within such markets. The basic essence and nature of a preferred stock is that it is usually considered a loan, which has to be repaid after a certain period of time.

A preferred stock holder gets preference over a common stock holder with respect to the payment of dividends. A common stock holder receives dividend only after all the company’s dues are cleared off. Issuance of bond is similar in nature to receiving a loan. The par/face value of the bond is credited within the Bonds Payable account. If the market interest rate on the bond would be higher coupon rate, it would result in a premium on the bond. 4. Discuss the controversy surrounding the Fair-Value vs.

Amortized Cost presentation of the value of stocks, bonds and all other investment securities on the Financial Statement. US GAAP uses Fair Value, US Statutory uses Amortized Cost and IFRS uses a mix of both depending on the security. What are the advantages and disadvantages of both approaches, and what do you feel is the best way to value this type of asset? The controversy surrounding Fair Value Accounting and Accrual accounting has been prevalent for quite some time now. The major debate is that when to record the profit or loss on any particular security.

According to the Fair Value accounting, gains or losses should be recorded whenever is seems that any security has lost its value i.e. if that security is sold at the current moment. Amortized cost accounting on the other hand favors the recording of gains and losses on the actual happening of the event i.e. when the security is disposed. The major advantage of Fair Value