Exam 3: Financial Reporting Concepts

The main users of financial reporting are the employees of a company.

A persuasive constraint that ensures the value of the information provided is greater than the costs of providing it is the

Accounting information is complete if it includes all information necessary to show the economic reality of the transaction.

Which of the following is a situation indicating that control over goods or services have transferred at a point in time?

One criterion for recognition of revenue is to recognize revenue when

Presented below are some business transactions that occurred during 2021 for Kilgana Company: Instructions For each situation above, identify the assumption, concept, or constraint that has been violated, if any. If the entry is incorrect, prepare the entry that should have been made, if any.

If a company is not a going concern, then its assets will be presented at their net realizable value.

The overriding criterion in evaluating the accounting information to be presented is

Under the contract-based approach, a company can recognize revenue when it has transferred a promised good or service to a customer.

The cost model to report property, plant, and equipment is where the carrying value on the balance sheet is the fair value less accumulated depreciation.

Revenue can be recognized before the service has been fully provided.

At the time of acquisition, long-lived assets are recorded at

Accounting information has relevance if it makes a difference in a decision.

The information provided in the notes that accompany financial statements is required because of the

Comparability means that a company uses the same accounting principles and methods from year to year.

Which of the following is an important component of relevance?

Qualitative characteristics associated with relevant accounting information are

A contractor fixing an overhead door and replacing several parts including springs and tracks is an example of multiple performance obligations.

Information is verifiable if two knowledgeable and independent people would generally agree that it faithfully represents the economic reality.

The following are independent situations observed by Dino Industrial's senior accountant at December 31, 2021, the company's year end: 1. Dino has parts inventory for use in its construction department (not for resale). The inventory includes over 1,500 different items, with between 10 and 100 of each item in stock. The cost of the individual items ranges from $ 0.30 to $ 1.50. In the past, the inventory quantities have been estimated by weighing the parts bins. This year, the accountant had the individual items counted and priced to provide more precise information. The total estimated value of the items is $ 45,000, which is material in total. It took four staff a full day to count the inventory at a cost of $ 1,000 in labour costs, and it would have taken two staff a half day to complete the estimate by weighing at a cost of $ 250. After the count, an entry of $ 27 was needed to reduce the inventory balance to actual. The entry was debited to Construction Supplies Expense. 2. Goods with a sales price of $ 55,000 were shipped to a customer FOB shipping point. The goods were picked up by the shipping company on December 31, 2021, and delivered to the customer on January 2, 2022. The customer's invoice was prepared and recorded in January 2022. 3. Prepaid expenses include $ 12,000 in prepaid rent related to the long-term lease of a branch office. When the lease was signed 4 years ago, Dino had to pay a $ 6,000 deposit, which comprises the final month's rent. Rental rates have since doubled in that location, so an entry has been recorded to reflect this value as follows: "Debit Prepaid Rent $ 6,000; Credit Rent Expense $ 6,000." The junior accountant's argument for making this entry is that the company has benefited from the long-term lease and the financial statements should reflect this benefit. 4. One of the owners of Dino purchased a vacation property for $ 190,000 with company funds. The transaction was recorded as a debit to Property, Plant, and Equipment, and a credit to Cash. Instructions For each of the events, indicate the accounting assumption, concept, constraint, or recognition criteria that have been violated and provide your reason. Prepare the correcting entry required, or if no entry is required, explain what other change, if any, should be made to ensure that Dino's financial statements comply with GAAP.