Respond 1

Question 1

Recent developments in our economy, companies that are too big to fail, and skyrocketing unemployment have required unprecedented action from our legislators. Have their actions, through the use of taxpayer funds, been consistent with the objectives of the income tax law? Please explain.

Respond to this… There have been several tax law changes in recent years, especially when it comes to home ownership.  The Economic Recovery Act of 2008 brought to us the first time homebuyers credit.  Allowing tax credits to individuals buying their first home.  Giving incentives for people to buy versus rent.  The option to deduct your private mortgage insurance from your taxes if you are required to purchase it is another tax deduction allowable in recent years.  A widow or widower has many difficult decisions to make soon after losing a spouse. But a provision in the Mortgage Forgiveness Debt Relief Act of 2007 now offers surviving spouses some tax relief in connection with one of those decisions, the sale of the family home.In most cases, a seller can exclude up to $250,000 in profit from the sale of a primary residence. The tax-free amount is $500,000 when the home is sold by a married couple filing a joint return.  In 2005, the Energy Tax Incentives Act created many tax breaks for homeowners who made energy-efficient improvements to their homes. Several of those tax breaks have been in place for years. More recently, other energy-saving options have been added to the home upgrade list.  One of the first housing-related tax relief measures was the Mortgage Forgiveness Debt Relief Act of 2007. Enacted on Dec. 20, 2007, the law's main provision allows taxpayers to exclude debt forgiven on their principal residence when the mortgage is restructured or the property goes into foreclosure.

 

References:

Bell, Kay, 7 housing tax laws you don't to miss, Bankrate.com, n.d., http://www.bankrate.com/finance/money-guides/7-housing-tax-laws-you-don-t-want-to-miss-1.aspx

Question 2

You have been hired by a very reputable accounting firm. Your boss has asked you to explain your view of accounting codification because you will need to apply the accounting standards in your role as a staff accountant. What are you going to say to your boss? Why would your boss be concerned about this issue? Explain.

Respond to this… My boss should know that we all work under GAAP. I don't know why my boss is so concerned about the codification issue.

If the company has to deal transactions overseas, I would understand the issue because international operation needs compliance with IGGAP in some countries, such as Africa, China, Europe and the rest of the world.

I will need "codification" to match the transaction with our current system operation GAAP. Codification is not simple to memorize. I would just ask my boss to provide the recently updated codification table to match some overseas transaction to our U.S. GAAP.

As we know, there are politics inside the company. Auditors required companies to comply accounting with Sarbanes-Oxley act because of fraud.

Source: https://asc.fasb.org/

Question 3

What kinds of conflicts can arise by having "shareholder maximization" as the primary goal of a firm? Do you believe that firms should have a different "objective"? Please explain.

Respond to this… When a firm sets the primary objective or their firm for shareholder maximization, their ultimate goal is to increase the stock price and net value of the firm. However, not all managers of a firm benefits from shareholder maximization unless they own stock. Therefore, it can cause conflicts between managers and the Board of Directors who do not own stock as they do not benefit from shareholder maximization.

I think that firms should have a different kind of objective that focuses more on revenue increases that ultimately, will increase the net worth of the company and stock. By setting revenue increase as the primary objective, it allows for the company to focus on different aspects of the operations in comparison to just focusing on shareholder maximization. Additionally, if a company sets their primary objective as shareholder maximization and an investor purchases significant stock. this can cause abrupt changes and potentially a loss in stock for the company.

Reference

http://bizfinance.about.com/od/Basic-Financial-Management/a/what-is-shareholder-wealth-maximization.htm