Question 1
Many individuals have property that increases in value over time. Examples are homes, stocks and bonds, and artwork. Explain why the increase in these items, from year to year, is not considered gross income.
What do you think would happen if these increases were required to be included in gross income? (Consider actions of taxpayers and administrative issues the IRS might face.)
Consider discussing the tax concept of income, administrative convenience, and wherewithal to pay in your responses.
Question 2
The importance of the Income Statement lends itself in explaining the success of a company in the current period, and how they will perform in the future. Whenever there is a financial crisis, accurate financial statements are a major concern.
What are the effects of accounting errors on the income statement? In addition, are there specific ways to ensure the validity of income statement accounts in your perspective? Support your answer with at least one example.
Question 3
Introduce and explain the Capital Asset Pricing Model. What is it intended to calculate, and why is it useful in finance?