The article presents reply by authors to comments by I. Solomon and P.J. Beck, in a paper titled "A Comparison of General Price Level and Historical Cost Financial Statements in the Prediction of Bankruptcy: A Comment," published in the July 1980 issue of the journal "The Accounting Review." According to authors, Solmon and Beck correctly indicated that other uses of general price level (GPL) information must be examined. Perhaps the focus of future research should be to determine whether GPL information is useful in assisting investors and creditors in predicting future cash flows in light of FASB's current focus. However, Solmon and Beck failed to illustrate that conclusion of authors of the present article related to GPL and HC "does not actually follow from the analysis and results." Authors also did not prove any serious deficiencies in the methodology used to reach those results. Authors of the article continue to contend that if the criterion of usefulness is the ability to predict bankruptcy, their study showed that GPL financial statements are equally useful as, but not more useful than, HC financial statements.

The objective of this study is to compare the prediction of bankruptcy based on ratios computed from GPL financial statements to the prediction based on ratios computed from traditional historical cost financial statements. A sample of an equal number of bankrupt and non-bankrupt firms was chosen, and the financial statements were adjusted for the effects of general price level changes. Financial ratios were computed from both the traditional and GPL financial statements. Discriminant analysis was used for the bankruptcy classifications. The authors found that both GPL and traditional ratios exhibited the ability to predict bankruptcy. In spite of the sizable differences in magnitude that existed between GPL and historical cost financial statements, little difference was found in the bankruptcy predictions. GPL data were shown to be consistently neither more nor less accurate than historical data for predictions of bankruptcy.

Accounting Principles Board Opinion No. 29 provides that an exchange of nonmonetary assets normally should be accounted for as if the exchange involved monetary assets. One exception to this provision is the case in which a productive asset not held for resale is exchanged for a similar productive asset in which case the asset received is recorded at the book value of the asset relinquished. However, an interpretive problem arises if a significant amount of cash is included in such an exchange. This paper describes the problem and suggests a solution.

Reviews the book "Techniques of Profitability Analysis," by Sam R. Goodman.

Frank K. Reilly, Ralph E. Smith, Glenn L. Johnson, A Correction and Update Regarding Individual Common Stocks as Inflation Hedges, The Journal of Financial and Quantitative Analysis, Vol. 10, No. 5 (Dec., 1975), pp. 871-880

The results of this study indicate that the individual common stocks in the Dow-Jones. Industrial Average were not consistent inflation hedges. Assuming an 8.2 percent normal required rate of return, none of the common stocks was a complete inflation hedge during all three recent inflationary periods tested. Even assuming a zero normal required rate of return á la traditional investment theory, only six (20 percent) of the thirty common stocks sampled were inflation hedges during all three inflationary periods.

Focuses on a project by the American Accounting Association's Committees on Professional Examinations which evaluated the professional examinations for accountants. Objectives of the project; Methodology of the projects; Comparison of examinations and accounting curricula; Recommendations.