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    Accounting Terms - definitions

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    1. What is "Sale of Stock in Secondary Markets"?

    2. What is "Stock Issued for Noncash Assets or Services"?

    3. What is "Component Percentages"?

    4. What is "Tests of Solvency."

    6. Do you think financial statement measures have to conform with GAAP to be useful to analysts? Why or why not?

    7. How does recognizing a company's core business assists in analyzing earnings and operating cash flows? Do you think core business activities remain constant over time? Why or why not?

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    Solution Preview

    Please see response attached.

    1. What is "Sale of Stock in Secondary Markets"?

    Let's look more closely at both Primary and Secondary markets, to understand the difference, and to more fully understand the "sale of Stock in Secondary Markets."
    Sales of Stock in Primary Market
    Securities generally have two stages in their lifespan. The first stage is when the company initially issues the security directly from its treasury at a predetermined offering price. This is a primary market offering. It is referred to as the initial public offering (IPO). Investment dealers frequently buy initial offerings on the primary market and resell the securities on the secondary market.
    The Capital Markets Staff of the Securities Administration Branch enforces primary market regulations. An example of primary market regulation is the obligation of a company to file a prospectus with the Branch when it issues shares. The Capital Markets Staff receive and review the prospectus to determine whether it achieved full disclosure. Again, this review is not to approve the merits of the security, but to ensure that companies meet the minimum requirements of full disclosure.
    Most prospectuses are available on the electronic web-based system known as the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Individual investors who wish to obtain company information can access this central repository. This promotes the goal of equal access to information for everyone.
    Sale of Stock in Secondary Market
    The second stage is when an investor or dealer makes the shares, bought from a company treasury, available for sale to other investors on the secondary market. In the secondary market, the trading of shares is between investors. This trading usually takes place through a stock exchange, such as the Toronto, New York, Montreal or CDNX Stock Exchange.
    New Brunswick regulates the secondary market only indirectly by requiring the dealers and salespeople who sell investments to be registered. The Securities Administration Branch is a repository of registration information. Investors can find out if their dealer or salesperson is registered and whether there has ever been disciplinary action against the dealer or salesperson. http://www.investor-info.ca/securities_reg_markets.asp

    2. What is "Stock Issued for Noncash Assets or Services"?
    This is when stock is issued for Noncash Assets or Services, such as in the following example. How is the value of stock determined when stock is issued for non-cash assets? When stock is issued for non-cash assets, the general rule is to record the transaction at the fair market value of the stock. If the fair market value of the stock cannot be determined, then the fair market value of the assets ...

    Solution Summary

    By responding to the questions, this solution defines the related accounting terms e.g., sale of stock in secondary markets; stock issued for noncash assets or services, and the others.

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