Question

Financial Accounting Standards Board (FASB 2008).  Statement of Financial Accounting Standards No. 57 Related Party Disclosures.

Financial Accounting Standards Board (FASB 2020).  Accounting Standards Codification 850 Related-Party Transaction.

Nurnberg, Hugo and Thomas F. Schaefer (2010).  Integrative Case in Advanced Accounting. Issues in Accounting Education 25, No. 2, 323–329.

1. How useful is Modern Cardiology’s income statement as presented in Exhibit 1 in resolving this income-sharing dispute?

2. What are its limitations?

3. Does it conform to U.S. generally accepted accounting principles (GAAP)?  Cite the standards including paragraph numbers to support your answer.

4. What is the appropriate entity for assessing the reasonableness of Modern Cardiology’s income distribution and profitability?

5. What is the appropriate entity for assessing the reasonableness of Technology Properties’ income distribution and profitability?

Answer 1

1.

Usefulness and limitations of income statement[edit]

Income statements may help investors and creditors determine the past financial performance of the enterprise, predict the future performance, and assess the capability of generating future cash flows using the report of income and expenses.

However, information of an income statement has several limitations:

• Items that might be relevant but cannot be reliably measured are not reported (e.g., brand recognition and loyalty).
• Some numbers depend on accounting methods used (e.g., using FIFO or LIFO accounting to measure inventory level).
• Some numbers depend on judgments and estimates (e.g., depreciation expense depends on estimated useful life and salvage value).

2.limitations mentoined above

3. yes US GAAP Supports the answer

4.

Measurement[edit]

Main article: Income inequality metrics

The concept of inequality is distinct from that of poverty^[3] and fairness. Income inequality metrics (or income distribution metrics) are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. While different theories may try to explain how income inequality comes about, income inequality metrics simply provide a system of measurement used to determine the dispersion of incomes.

Causes of income inequality[edit]

Main article: Economic inequality

Causes of income inequality and of levels of equality/inequality include: tax policies, other economic policies, labor union policies, Federal Reserve monetary policies & fiscal policies, the market for labor, abilities of individual workers, technology and automation, education, globalization, gender bias, racism, and culture.

Distribution measurement internationally

Using Gini coefficients, several organizations, such as the United Nations (UN) and the US Central Intelligence Agency (CIA), have measured income inequality by country. The Gini index is also widely used within the World Bank.^[4] It is an accurate and reliable index for measuring income distribution on a country by country level. The Gini index measurements go from 0 to 1 for 1 being perfect inequality and 0 being perfect equality. The world Gini index is measured at 0.52 as of 2016.^[

^5.However, the increase in inequality is affecting high- and middle-income countries, as labor-saving technology has replaced many blue-collar jobs that paid well. ... Those workers have had to switch to retail and home healthcare jobs, where the pay is typically lower.