Exam 2: Qualities of Accounting Information

________ have more detailed rules than ________.

On July 1,the bank said it may lend money to Funny Books,Inc.,but only after it prepares an income statement for the month of July.Since the bank did not specify,Funny Books,Inc.did not follow generally accepted accounting principles (GAAP).It reported net income of $12,000 for the month ended July 31.The revenue included $4,000 of cash collected in advance from customers for services to be performed in August.The revenue also included a $3,000 increase in the value of its land.The expenses excluded $2,000 Funny Books owed for July services it received. Part A: List the GAAP that were violated by Funny Books,Inc.and explain what the proper accounting treatment would be. Part B: Net income in accordance with GAAP should have been $________. Part C: Do you think the management of Funny Books,Inc.was acting unethically? Why or why not?

Preventive controls include ________.

Accounts payable are classified as ________.

Why is it necessary to adjust the books?

Evaluate the following information for Team Shirts: Part A: Calculate the current ratio for Team Shirts (round to two decimal places). Part B: Is the ratio acceptable or unacceptable? Why? Part C: Advise Team Shirts how to improve the ratio.

An example of a preventive control is to require passwords in order to limit access to the information system.

The revenue reported on the Team Shirts' income statement has been earned during the accounting period.The accounting rule that applies is the ________.

Relevant information ________.

Net income equals ________.

Information that is relevant is both timely and useful in predicting the future.

Explain the objectives of financial reporting.

Team Instructions: Divide the class into teams of three or four people.Each team member should work the following problem separately outside of class.Then give the students time in class to compare answers with their teammates and put together a final correct copy of the problem.Each team should turn in only one copy of the problem for grading.All team members will receive the same grade.Provide students with copies of real merchandising companies' annual reports,or give students the Web addresses of real merchandising companies and ask them to print out the annual reports.All team members should work with the same company's annual report. Answer the following questions using the annual report assigned to your team.Turn in your annual report along with your answers.

State the most applicable accounting rule for each of the following situations.An accounting rule can be a principle,assumption,constraint,or information characteristic. 1.All purchases and expenses are recorded at the amount paid. 2.South Seas records items imported from Tahiti in U.S.dollars. 3.The owner intends to run South Seas for an indefinite period of time. 4.Jem's Jewelers sold a $5,000 diamond engagement ring on account and recorded it as a sale. 5.Inventory purchased last month and sold this month was deducted as a cost on this month's income statement.

IFRS have fewer detailed rules than U.S.GAAP.

Team Shirts ordered T-shirts from its supplier in June.The T-shirts were delivered in July.Team Shirts paid the bill in August and sold the T-shirts in September.When should Team Shirts recognize an expense using cash-basis accounting?

During May,Team Shirts spent $4,000 to buy 800 T-shirts.In May,Team Shirts sold 300 of them for $15 each.The rest were sold for cash of $12 each in June.Net income for May and June was ________.

Clean Sweep agreed to clean an office building on a weekly basis for $1,000 per week.The contract began on August 15,and Clean Sweep cleaned the building twice during August.Clean Sweep received $1,000 cash in August.During August,Clean Sweep spent $400 on wages for the workers who cleaned the building,$90 for the cleaning supplies used,and $4,000 to purchase specialized cleaning equipment.How much revenue should Clean Sweep recognize in August using cash-basis accounting?

Consistent information ________.

Team Shirts purchased six months' worth of insurance for $900.The insurance would initially be recorded as ________.