Financial-reporting-and-statement-analysis：a-stategy-perspective课后题答案-chapter2.pdf

Chapter 2 Asset and Liability Valuation and Income Measurement CHAPTER 2 ASSET AND LIABILITY VALUATION AND INCOME MEASUREMENT Solutions to Questions, Exercises and Problems, and Teaching Notes to Cases 2.1 Asset Valuation and Income Measurement. To maintain the equality of assets with liabilities plus shareholders’ equity, changes in the valuation of assets must generally affect some shareholders’ equity. For example, decreases in depreciable assets to recognize depreciation expense also reduce retained earnings. Increases in the valuation of marketable securities available for sale also increase other comprehensive income. If one defines “income” to include both net income and other comprehensive income, then asset valuation and income measurement directly relate. If one defines “income” to mean just net income, a component of retained earnings, then asset valuation and income measurement do not always directly relate. Some changes in asset valuation must first go through other comprehensive income. When the firm realizes those value changes in a market transaction, then net income and retained earnings change. 2.2 Reliability versus Relevance. Reliability is an attribute of accounting information that relates to the degree of subjectivity open to management to measure its amount. The greater the potential and/or actual subjectivity, the lower the reliability. For e