Exam 14: Accounting Principles and Reporting Standards

According to FASB's conceptual framework, what are the 4 assumptions that financial statement users should assume that preparers of the statements have made in preparing the statements?

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Question 1

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1. Separate economic entity assumption
2. Going concern
3. Monetary unit
4. Periodicity of income

When a new company was formed, one partner contributed some used equipment he owned. The equipment was appraised at $44,000 and $50,000 by two different dealers. The accountant entered the equipment at $44,000 in the financial records of the partnership. This is an example of

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Question 2

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Accounting information that could make a difference in a decision by the user of the accounting information is

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Question 3

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Define and give an example of all modifying constraints on accounting principles.

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Question 4

The accounting assumption of expressing financial facts and events is meaningful only when they can be expressed in monetary terms is the:

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Question 5

How are the concepts of materiality and cost-benefit related?

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Question 6

Reporting the information on the income statement and the statement of owner's equity over a period of time and the balance sheet as of a specific date is complying with the

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Question 7

The separate economic entity assumption assumes that:

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Question 8

Select the statement below that correctly describes the matching principle.

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Question 9

Select the statement below that correctly describes the revenue recognition principle.

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Question 10

Financial accounting rules affect the recording of data used to prepare financial reports that go to and .

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Question 11

An accountant generally assumes that a firm is a(n) ________and will continue to operate indefinitely.

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Question 12

Spanky's Market sells organic foods and the owners and employees pride themselves on being environmentally conscious by using as little paper products as possible. As such, when the annual financial statements were issued, they omitted the notes to the financial statements thus using 70% less paper. Omitting the notes to the financial statements is

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Question 13

Antonio Hanley owns a small automobile service center. He recently approached the local bank for a loan to finance an expansion of his service center. Antonio prepared the balance sheet given below and submitted it with his loan application. The balance sheet does not conform to generally accepted accounting principles. Using the additional information provided by the owner, prepare a corrected balance sheet in accordance with generally accepted accounting principles. Additional information provided by owner: 1. The inventory has an original cost of $84,000. It is listed on the balance sheet at what it would cost to purchase today. 2. Included in the cash listed on the balance sheet is $8,000 in Antonio Hanley's personal checking account. 3. Depreciation allowable to date on the equipment is $10,000. Depreciation allowable to date on the truck is $6,000.

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Question 14

Match the descriptions by entering the proper letter in the space provided with the accounting terms.

This is the nongovernmental sector of society. In an accounting context it is the business sector, represented in the accounting rule-making process by the Financial Accounting Standards Board

Conceptual framework

The concept that revenues and the costs incurred in earning those revenues should be recorded in the appropriate accounting periods

Transparency

If alternative treatments of items are of equal validity, the alternative resulting in lowest profit should be used

Industry practice constraint

Correct Answer:

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This is the nongovernmental sector of society. In an accounting context it is the business sector, represented in the accounting rule-making process by the Financial Accounting Standards Board

The concept that revenues and the costs incurred in earning those revenues should be recorded in the appropriate accounting periods

If alternative treatments of items are of equal validity, the alternative resulting in lowest profit should be used

It is assumed that only those items and events that can be measured in monetary terms are included in the financial statements. An inherent part of this assumption is that the monetary unit is stable. Thus assets purchased one year may be combined in the accounts with those purchased in other years even though the dollars used in each year actually may have different purchasing power

These are necessary characteristics that must be present in financial statements if they are to be credible

In some cases where an accounting item is deemed too small to affect a user's decisions, the "required" accounting may be ignored

All information that might affect the user's interpretation of the profitability and financial condition of a business should be disclosed

This is the governmental sector, represented in the accounting rulemaking process by the Securities and Exchange Commission

Revenue is recognized when it has been earned and realized

The principle that requires assets to be recorded at their cost at the time they are acquired and that, generally, long-term assets remain at historical costs in the asset accounts

The transparency notion is that information provided in the financial statements and the notes accompanying them should provide a clear and accurate picture of the financial affairs of the company. The key to this idea is that of disclosure

This is the concept that a business is separate from its owner or owners and the financial statements reflect the affairs of the business, not those of the owner

The assumption that a business will continue to operate indefinitely

In a few limited cases the unusual operating characteristics of an industry, usually based on risk, special accounting principles, and procedures have been developed. These may not conform completely to GAAP for other industries

A basic framework developed by the FASB to provide conceptual guidelines for financial accounting and statements. The most important features are statements of qualitative features of statements, basic assumptions underlying statements, basic accounting principles, and modifying constraints

The idea that economic activities of an entity can be divided logically and identified with specific time periods, such as the year or quarter

If accounting concepts suggest a particular accounting treatment for an item but it appears that the theoretically correct treatment would require an unreasonable amount of work, the accountant may analyze the benefits and costs of the preferred treatment to see if the benefit gained from its adoption is justified by the cost

The concept that information in financial statements cannot be selected or presented in a way to favor one set of interested parties over another

With regards to revenue, it takes place only when cash, a financial claim, or other consideration is received for the sale of goods or services

(Matching)

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Question 15

Marvin's Appliance Store sold a 3-year service contract on a refrigerator receiving the entire amount in cash at the time of the sale. Recording the revenue from the prepaid service contract over its 3-year life is an example of

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Question 16

Recording land at its cost rather than its appraisal value illustrates

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Question 17

Revenue should not be recorded until it is ________; that is, until new assets are created in the form of money or receivables.

(Short Answer)

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Question 18

What is the general rule-of-thumb for determining if an item is material?

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Question 19

The matching principle requires that all known costs be charged to the current period of operations.

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Question 20

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Exam 14: Accounting Principles and Reporting Standards

According to FASB's conceptual framework, what are the 4 assumptions that financial statement users should assume that preparers of the statements have made in preparing the statements?

When a new company was formed, one partner contributed some used equipment he owned. The equipment was appraised at $44,000 and $50,000 by two different dealers. The accountant entered the equipment at $44,000 in the financial records of the partnership. This is an example of

Accounting information that could make a difference in a decision by the user of the accounting information is

Define and give an example of all modifying constraints on accounting principles.

The accounting assumption of expressing financial facts and events is meaningful only when they can be expressed in monetary terms is the:

How are the concepts of materiality and cost-benefit related?

Reporting the information on the income statement and the statement of owner's equity over a period of time and the balance sheet as of a specific date is complying with the

The separate economic entity assumption assumes that:

Select the statement below that correctly describes the matching principle.

Select the statement below that correctly describes the revenue recognition principle.

Financial accounting rules affect the recording of data used to prepare financial reports that go to________ and ________.

An accountant generally assumes that a firm is a(n) ________and will continue to operate indefinitely.

Marvin's Appliance Store sold a 3-year service contract on a refrigerator receiving the entire amount in cash at the time of the sale. Recording the revenue from the prepaid service contract over its 3-year life is an example of

Recording land at its cost rather than its appraisal value illustrates

Revenue should not be recorded until it is ________; that is, until new assets are created in the form of money or receivables.

What is the general rule-of-thumb for determining if an item is material?

The matching principle requires that all known costs be charged to the current period of operations.

Accounting: The Language of Business

Analyzing Business Transactions

Analyzing Business Transactions Using T Accounts

The General Journal and the General Ledger

Adjustments and the Worksheet

Closing Entries and Teh Postclosing Trial Balance

Accounting for Sales and Accounts Receivable

Accounting for Purchases and Accounts Payable

Cash Receipts, Cash Payments, and Banking Procedures

Payroll Computations, Records, and Payment

Payroll Taxes, Deposits, and Reports

Accruals, Deferrals, and the Worksheet

Financial Statements and Closing Procedures

Accounts Receivable and Uncollectible Accounts

Notes Payable and Notes Receivable

Merchandise Inventory

Property, Plant, and Equipment

Accounting for Partnerships

Corporations: Formation and Capital Stock Transactions

Corporate Earnings and Capital Transactions

Long-Term Bonds

Financial Statement Analysis

The Statement of Cash Flows

Departmentalized Profit and Cost Centers

Accounting for Manufacturing Activities

Job Order Cost Accounting

Process Cost Accounting

Controlling Manufacturing Costs: Standard Costs

Cost-Revenue Analysis for Decision Making

Filters

Financial accounting rules affect the recording of data used to prepare financial reports that go to and .