LLM - Financial Statements

docx

School

Northeastern University *

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Course

3301

Subject

Finance

Date

Feb 20, 2024

Type

docx

Pages

Uploaded by DrMetalGerbil22

Main prompt : what items can be specified/classified as "Extraordinary Items" on a company's income statement? Prompt justification : The reason I chose this prompt is because when talking about extraordinary items during class, I didn’t understand what sort of items could be classified under it. Although the examples relating to finances regarding coupon debt and gains or losses from market securities were mentioned, the exact items that can be under that item was not clear to me. Later on, we also talked about how gains or losses have another classification category for themselves as well, so it seemed weird how gains or losses can also be classified under extraordinary items as well as their own category too. Thus, this prompt came from me wanting a further clarification on what we learned during our FINA 3301 course. Follow-up prompt 1 : regarding "gains or losses", what makes it classified as an "exceptional item" rather than as a "gain or loss associated with accounting changes"? Follow-up prompt 2 : can you give a few examples of specific events or transactions outside the normal course of business that may occur for a firm? Assessment-Similarities : One of the similarities that ChatGPT responded with was the gain or loss occurred from the marketable securities held by the firm. These can be stocks that the company has purchased as a part of its investments or a part of its subsidiaries/companies that the firm own a major stake in. Specifically, ChatGPT said that the “gains or losses from discontinued operations” can be classified under “Extraordinary Items”, as the gains or losses from the sale of a marketable security or a company’s business is seen as extraordinary items that are unusual and infrequent in nature. Assessment-Differences : Rather than a difference between the information given by ChatGPT and FINA 3301 course content, the main difference was the level of detail given about the topic. For example, while the two sources of information gave context into the different sort of extraordinary items, ChatGPT went into detail by giving 8 different examples including but not limited to natural disasters, litigation settlements, and write-offs of bad debt. I think this further completes the entire response as rather than mentioning just one example to explain thoroughly, it provided very different contexts that can show varying effects on a company’s financials, especially between the possible damages that could occur due to natural disasters compared to the potential write-offs of bad debt.

Main prompt : do companies tend to prefer stock-based compensation over cash? Prompt justification : The reason I chose this prompt is because when we were talking about the balance of cash and stock in an employee’s compensation package I kept thinking to myself why there was a difference in the balance between the two, and why some companies don’t offer any stock-based compensation at all. The only thing that was mentioned in class was when stock-based compensation is established, the disappearance of a cash flow evades a cash expense. We went on to later talk about how companies in different industries similar compensation packages have compared to their competitors, for example while the utilities sector pays 2.1% of stock in its compensation the information technology sector pays a much more substantial 18.8%. Thus, this prompt also came to find a further clarification and understanding on what we learned in class. Follow-up prompt 1 : if any, what are the tax benefits when companies pay employees using stock? Follow-up prompt 2 : how are stock-based compensations plans reported on a companies financial statement? Assessment-Similarities : The main similarity between the answer I got from ChatGPT and our course was the emphasis on implementing a lower taxable income that’d reduce the taxes the firm would need to pay at the end of the financial year. This appeared to be the biggest reason for companies to implement this strategy, as it is evident that any legal strategy the firm can take advantage of for their own benefit will most likely be implemented. ChatGPT specifically mentioned, “Companies can potentially deduct the value of stock-based compensation as an expense on their corporate tax returns, subject to certain conditions and limitations. This can reduce the company's taxable income and result in lower tax liability.” Assessment-Differences : A key difference that the answer from ChatGPT had compared to our course content, was the effect of a stock-based compensation on the employees. For example, ChatGPT pointed out the possibilities for tax deferral, capital gains treatment, tax treatment for ISOs, ESPPs, and employment taxes. The system later on went into detail about how employees can ignore tax payments until the given stock(s) are sold, how holding onto a stock for a specified period before selling it can qualify them for a capital gains treatment based on the return, as well as the numerous tax benefits that arrive with ISOs, ESPPS, and employment taxes. It appeared to be that while our course content focused more on how a

company can better coordinate its compensation strategy to benefit the company as a whole, ChatGPT focused on the potential upsides that would help the employees of a given company. This made the answer complete since rather than taking a one-way street into answering the question in the perspective of a company, ChatGPT filled out the blanks in my head asking, “but how does the employee benefit from this?”

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