Accounting Theory and Practices

Question 4

a) Positive statement because the conclusion attempts to discover how lenders decides which is the best way of identify the debt paying of the company. The premises are valid. However, the conclusion is possibly true conclusion. Lenders should not use only cash flows to identify the debt paying ability of a company. Lenders should use both cash flows to identify the short-term debt paying ability and statement of financial performance to identify the long-term debt paying ability.

b) Normative statement because it is analyzing and explaining accepted practice. The premises and conclusion are valid and true.

c) Positive statement because the conclusion attempts to discover how management and others decides which is the best way to increase the reported profits. Premise 1 is invalid because not necessary all accountant use only accounting methods that increase reported profits, accounting methods are based on the consideration and the circumference of the company involved. The conclusion is untrue because not all accountants capitalize interest payments, some accountant record interest as expenses.

d) Normative statement because it is analyzing and explaining accepted practice of historical cost accounting. The premises are true. The conclusion is possibly true because it has to depend on the type and nature of the assets being evaluated. Sometimes, the best measure of financial performance and value is through fair value accounting.

Question 5

(a) Accounting reports should indicate a firm’s ability to meet its debts.

The argument is valid since it has the syntactic relationship. This means that if the statements were true, the conclusion will be true also.

The accounting reports that report the selling prices of assets to indicate a firms’ ability to meet its debts are having some argument. Asset valuation by using selling prices could demonstrate a firm’s ability to meet the financial obligation and obtaining credit....