Instructions: Please, respond to the below two cases and include at least 2 references (citation). This assignment should be about 2 pages total (around 500 words including only the answers.) CASE 5-1...

Please, respond to the attached two cases and include at least 2 references (citation). This assignment should be about 2 pages total (around 500 words including only the answers.)

Thank you for your help!

Instructions: Please, respond to the below two cases and include at least 2 references (citation). This assignment should be about 2 pages total (around 500 words including only the answers.) CASE 5-1 Income Smoothing One reason accounting earnings might not be a realistic measure of economic income is the incentive and ability of business managers to manipulate reported profits for their own benefit. This may be particularly true when their company has an incentive compensation plan that is linked to reported net income. The manipulation of earnings, known as earnings management, commonly involves income smoothing. Income smoothing has been defined as the dampening of fluctuations about some level of earnings that is considered normal for the company. Research has indicated that income smoothing occurs because business managers prefer a stable rather than a volatile earnings trend. Required: a. Why do business managers prefer stable earnings trends? b. Discuss several methods business managers might use to smooth earnings. CASE 5-8 The Concept of Conservatism The concept of conservatism has been influential in the development of accounting theory and practice. A major effect of conservatism is that accountants tend to recognize losses, but not gains. For example, when the value of an asset is impaired, it is written down to fair value and an unrealized loss is recognized in the income statement. However, when the asset’s value appreciates, its value is not written up to fair value. (An exception is current accounting for investments in securities having readily determinable fair values.) Stated differently, accountants tend to recognize holding losses, but not holding gains. Required: a. Define conservatism. b. Why do you believe conservatism has affected financial reporting? Explain. c. Do you believe that financial statements that recognize losses but not gains provide information that is relevant and representationally faithful? Explain. d. Do you believe that the concept of conservatism is consistent with the physical capital maintenance concept? Explain. e. Do you believe that the concept of conservatism is consistent with the financial capital maintenance concept? Explain.