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Qualitative characteristics
12-23-2012, 04:49 AM
Post: #1
Qualitative characteristics

Please advice for the following qualitative characteristics.
1. Preferred shares that have to be repaid on a given date are classified as a liability despite their legal status as equity.

2. Cash received in advance of word done is recorded as a liability, unearned revenue.

3. Adjustments are made to financial statements that both decrease and increase net income, despite the manager preference to report lower net income.

Thanks in advance.
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12-25-2012, 04:07 AM
Post: #2
Preferred Shares - Debt or Equity
Classification of preferred shares is based on the contractual terms underlying the shares. If the preferred shares has a fixed term and date of payment, then it becomes a liability. See this lecture powerpoint presentation on balance sheet classification attached.

Cash received in advance for work not done is a customers deposit, and a liability as it is unearned revenue and may need to be returned.

Financial statements should reflect income in accordance to GAAP, generally accepted accounting principles. Tax planning is a separate issue. There are ways to minimize taxes without compromising GAAP.

Attached File(s)
.ppt  balancesheetclassificationdebtorequity.ppt (Size: 202 KB / Downloads: 3)
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