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UMUC ACCT640 homework 4

Homework: Chapter 4 – Exercises 4, 5 and 10. 4. Analyze the five national accounting practice systems summarized in the chapter. Required: a. For each of the five countries treated in the chapter, select the most important financial accounting practice or principle at vari- ance with international norms. b. For each selection you make, briefly state your reasons for including it on your list. c. How does this variance affect reported earnings and the debt-to-asset ratio? d. How likely is it that an analyst could adjust for this variance to achieve an “apples to apples” comparison with companies from other countries?5. Refer to Exhibit 4-5. Required: Which country’s GAAP appears to be the most oriented toward equity investors? Which country’s GAAP appears to be the least oriented toward equity investors? Why do you say so?10. The following are financial ratios used by analysts: • Liquidity: current ratio; cash flow from operations to current liabilities • • Solvency: debt to equity; debt to assets Profitability: return on assets; return on equity Required: Assume that you are comparing the financial ratios of companies from two coun- tries discussed in this chapter. Discuss how the accounting practices identified in Exhibit 4-5 would affect your comparisons for each of the six ratios listed.EXHIBIT 4-5 Summary of Significant Accounting Practices United States Purchase Capitalize and impairments test Equity method Historical cost Economic based Permitted Accrued Capitalized Accrued No Mexico Purchase Capitalize and impairments test Equity method Historical costa Economic based Not used Accrued Capitalized Accrued No Japan Purchase Capitalize and amortize; and impairments test Equity method Historical cost Tax influenced Permittedb Accrued Capitalized Accrued No China Purchase Capitalize and impairments test Equity method Historical cost Economic based Not permitted Accrued Capitalized Accrued No India 1. Business combinations: purchase or pooling 2. Goodwill 3. Associates 4. Asset valuation 5. Depreciation charges 6. LIFO inventory valuation 7. Probable losses 8. Finance leases 9. Deferred taxes 10. Reserves for income smoothing Both Capitalize and amortize; and impairments test Equity method Historical cost and fair value Economic based Not permitted Accrued Capitalized Accrued Some aPrice-level adjus

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