We are conducting a study to understand the effects of estimates on investor judgments.
This online research instrument will take approximately 20 minutes to complete. Please do not indicate your name or provide any identifying information in order to remain anonymous. (You will notify your instructor by e-mail after completing the study in order to receive your extra credit.) There are no "right" or "wrong" answers; we are only interested in your personal opinions. Your participation is voluntary and you may refuse to participate or refuse to answer any of the questions. You may discontinue the task at any time. However, you must complete the entire study in order to receive your course extra credit. Please be honest and thoughtful with all responses so that we may properly evaluate the results in the context of our study.
Please work independently on the research task and make your best attempt to answer all questions. Remember that your answers will be completely anonymous and that we will report the findings of this research only in a consolidated format.
Lastly, any data you provide will be kept secure once it is submitted to us. However, we cannot guarantee security during the transmission of data due to keylogging or other spyware that may exist on the computer you use to complete the research task.
Thank you for your time!
General Instructions
You are one of a small group of participants involved in this important study on investor judgments. Your participation is highly valued and we thank you for your time.
This study begins with information on a hypothetical firm called Supreme Pizza Paradise, in which you are assumed to have invested. You will then be provided with some financial data that you might find useful to analyze.
You will then be asked to make a decision on whether to continue to hold your investment (whether to maybe increase or decrease your investment). The final stage of the task includes a demographic survey. You will be guided through the process by on-line instructions.
It should take approximately 20 minutes to complete this study. It is very important that the task be completed in one sitting and by you individually, without discussion with your peers.
Again, we thank you for your time and cooperation.
PLEASE PROCEED TO THE NEXT PAGE WHEN READY.
Background Information: Company Overview
General Instructions
For the purpose of this study, please assume that you have invested $10,000 in a company called Supreme Pizza Paradise (also referred to as "Supreme", or "the Company").
Overview of Supreme
Supreme is a restaurant franchise featuring Chicago-style wood-fired pizzas. The Company was founded in Atlanta, Georgia in 1995. Supreme generates revenue from two sources: (1) profits from the operation of Company-owned restaurants, and (2) franchise fees and royalties from franchised restaurants.
Reacquired Franchise Rights
Supreme's preliminary Balance Sheet as of December 31, 2018 includes an intangible asset referred to as reacquired franchise rights. Franchise rights are an intangible asset. This is a significant asset for Supreme as it represents more than 25% of the Company's total assets. Specifically, franchisors are reacquiring rights from franchisees, and prices paid in these reacquisitions include some premium related to the contractual element of the franchise rights that is recognized as the intangible asset. Reacquired franchise rights have an indefinite life as an intangible asset and are reviewed for possible impairment (reduction in the recorded amount) at least annually or whenever events or circumstances indicate the carrying amount of the asset may be impaired in accordance with the relevant accounting standards.
Fair Value of Reacquired Franchise Rights
At Supreme, a staff member evaluates the fair value of reacquired franchise rights by projecting annual growth, weekly revenue, an expense ratio, and a discount rate based on the history of the operation and financial circumstances as well as the trend of the industry and general economy.
Fair value is "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date" (per SFAS No.157). Fair value should reflect the current value of the relevant accounting item. However, it requires greater use of estimates as compared to identifying the price at the time of purchase (historical cost) and has been criticized for its volatility and possible cause of the 2008 financial crisis (Laux and Leuz 2009).
1
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1 Laux, C., and Leuz, C. (2009). "The Crisis of Fair-Value Accounting: Making Sense of the Recent Debate."
Accounting, Organizations and Society 34: 826-834.
Excerpts from Supreme's Annual Report
Below are excerpts from the notes to the financial statements for Supreme Pizza Paradise for the year ended December 31, 2018.
Note 2 - Reacquaired Franchise Rights
Reacquired franchise rights result from the acquisition of franchise markets from existing franchisees. The excess of the reacquisition cost over the net amount of identifiable assets and liabilities recorded upon the acquisition of franchise markets is assigned to the value of the asset representing the franchise right to the market acquired.
Reacquired franchise rights are reviewed for possible impairment at least annually or whenever events or circumstances indicate the carrying amount (original value) of the asset may be impaired (reduced) in accordance with the standards.
(amounts in 000s) | Original Value | Current Estimated Value |
|
|
|
Reacquired Franchise Rights | $120,000 | $150,000 |
A staff member who focuses on estimation of fair value performed the annual test of impairment as of December 31, 2018 and found that the current estimated value is higher than the original value. Thus, no impairment would be recorded for the reacquired franchise rights.
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Questions about your Real-Life Experiences:For subquestions (i.e., f2, g2, i2, k2, l2, m2, n2, p2), please reply only if applicable.
e. Suppose there is choice between receiving $5 for certain, or taking a gamble that pays $10 with probability p and $0 with probability of 1-p. For what minimum value of p (a percentage, between 0 and 100) would you prefer to take the gamble over the certain $5?p =
f. From what sources have you previously heard about or read about artificial ingelligence? (You may select multiple options.)TV
Internet
Book
Newspaper
In School
At Work
I have never previously heard about or read about artificial intelligence.
g. How do you feel about artifical intelligence in general?I feel positively about artificial intelligence.
I have no feelings about artificial intelligence.
I feel negatively about artificial intelligence.
h. Please indicate the extent to which you believe that using artificial intelligence in professional judgments is risky. (0 = you believe that using artifical intelligence is not risky at all and 100 = you believe that using artifical intelligence is extremely risky) (out of 100)
i. Do you have any investment experience? NO -- or --
YES
j. Do you plan to invest in individual stocks in the future?NO -- or -- YES
k. Are you a CPA (Certified Public Accountant) and/or a CFA (Certified Financial Analyst)?Neither
CPA
CFA
Both CPA and CFA
l. Have you ever taken an accounting course? NO -- or --
YES
m. Have you ever taken a finance course? NO -- or --
YES
n. Have you ever evaluated fair value in your job? NO -- or --
YES
o. Have you ever evaluated fair value in a course? NO -- or --
YES
p. Do you have full-time work experience? NO -- or --
YES
q. Please indicate your gender: FEMALE -- or --
MALE
r. What is your highest education level attained?
s. What is your profession and current job title?
WE THANK YOU FOR YOUR TIME. THIS IS THE FINAL STAGE OF THE TASK.
YOU WILL NOT BE ABLE TO RETURN TO THIS PAGE ONCE YOU CLICK ON SUBMIT.