Grand Canyon acc370 week 1 assignment

CA1-3 (Financial Reporting and Accounting Standards)

Answer the following multiple-choice questions.

1.GAAP stands for:

(a)governmental auditing and accounting practices.

(b)generally accepted attest principles.

(c)government audit and attest policies.

(d)generally accepted accounting principles.

2.Accounting standard-setters use the following process in establishing accounting standards:

(a)Research, exposure draft, discussion paper, standard.

(b)Discussion paper, research, exposure draft, standard.

(c)Research, preliminary views, discussion paper, standard.

(d)Research, discussion paper, exposure draft, standard.

3.GAAP is comprised of:

(a)FASB standards, interpretations, and concepts statements.

(b)FASB financial standards.

(c)FASB standards, interpretations, EITF consensuses, and accounting rules issued by FASB predecessor organizations.

(d)any accounting guidance included in the FASB Codification.

4.The authoritative status of the conceptual framework is as follows.

(a)It is used when there is no standard or interpretation related to the reporting issues under consideration.

(b)It is not as authoritative as a standard but takes precedence over any interpretation related to the reporting issue.

(c)It takes precedence over all other authoritative literature.

(d)It has no authoritative status.

5.The objective of financial reporting places most emphasis on:

(a)reporting to capital providers.

(b)reporting on stewardship.

(c)providing specific guidance related to specific needs.

(d)providing information to individuals who are experts in the field.

6.General-purpose financial statements are prepared primarily for:

(a)internal users.

(b)external users.

(c)auditors.

(d)government regulators.

7.Economic consequences of accounting standard-setting means:

(a)standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.

(b)standard-setters must ensure that no new costs are incurred when a new standard is issued.

(c)the objective of financial reporting should be politically motivated to ensure acceptance by the general public.

(d)accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.

8.The expectations gap is:

(a)what financial information management provides and what users want.

(b)what the public thinks accountants should do and what accountants think they can do.

(c)what the governmental agencies want from standard-setting and what the standard-setters provide.

(d)what the users of financial statements want from the government and what is provided.

E2-1 (Usefulness, Objective of Financial Reporting)Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

(a)Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.

(b)General-purpose financial reports are most useful to company insiders in making strategic business decisions.

(c)Accounting standards based on individual conceptual frameworks generally will result in consistent and comparable accounting reports.

(d)Capital providers are the only users who benefit from general-purpose financial reporting.

(e)Accounting reports should be developed so that users without knowledge of economics and business can become informed about the financial results of a company.

(f)The objective of financial reporting is the foundation from which the other aspects of the framework logically result.

E2-2 (Usefulness, Objective of Financial Reporting, Qualitative Characteristics)Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.

(a)The fundamental qualitative characteristics that make accounting information useful are relevance and verifiability.

(b)Relevant information only has predictive value, confirmatory value, or both.

(c)Information that is a faithful representation is characterized as having predictive or confirmatory value.

(d)Comparability pertains only to the reporting of information in a similar manner for different companies.

(e)Verifiability is solely an enhancing characteristic for faithful representation.

(f)In preparing financial reports, it is assumed that users of the reports have reasonable knowledge of business and economic activities.

E2-3 (Qualitative Characteristics)SFAC No. 8identifies the qualitative characteristics that make accounting information useful. Presented below are a number of questions related to these qualitative characteristics and underlying constraint.

(a)What is the quality of information that enables users to confirm or correct prior expectations?

(b)Identify the pervasive constraint developed in the conceptual framework.

(c)The chairman of the SEC at one time noted, “If it becomes accepted or expected that accounting principles are determined or modified in order to secure purposes other than economic measurement, we assume a grave risk that confidence in the credibility of our financial information systemwill be undermined.” Which qualitative characteristic of accounting information should ensure thatsuch a situation will not occur? (Do not use faithful representation.)

(d)Muruyama Corp. switches from FIFO to average-cost to FIFO over a 2-year period. Which qualitative characteristic of accounting information is not followed?

(e)Assume that the profession permits the savings and loan industry to defer losses on investments it sells because immediate recognition of the loss may have adverse economic consequences on the industry. Which qualitative characteristic of accounting information is not followed? (Do not use relevance or faithful representation.)

(f)What are the two fundamental qualities that make accounting information useful for decisionmaking?

(g)Watteau Inc. does not issue its first-quarter report until after the second quarter’s results are reported. Which qualitative characteristic of accounting is not followed? (Do not use relevance.)

(h)Predictive value is an ingredient of which of the two fundamental qualities that make accounting information useful for decision-making purposes?

(i)Duggan, Inc. is the only company in its industry to depreciate its plant assets on a straight-line basis. Which qualitative characteristic of accounting information may not be followed?

(j)Roddick Company has attempted to determine the replacement cost of its inventory. Three different appraisers arrive at substantially different amounts for this value. The president, nevertheless, decides to report the middle value for external reporting purposes. Which qualitative characteristic of information is lacking in these data? (Do not use relevance or faithful representation.)

E2-4 (Qualitative Characteristics)The qualitative characteristics that make accounting information useful for decision-making purposes are as follows.

Relevance Neutrality Verifiability

Faithful representation Completeness Understandability

Predictive value Timeliness Comparability

Confirmatory value Materiality Free from error

Instructions

Identify the appropriate qualitative characteristic(s) to be used given the information provided below.

(a)Qualitative characteristic being employed when companies in the same industry are using the same accounting principles.

(b)Quality of information that confirms users’ earlier expectations.

(c)Imperative for providing comparisons of a company from period to period.

(d)Ignores the economic consequences of a standard or rule.

(e)Requires a high degree of consensus among individuals on a given measurement.

(f)Predictive value is an ingredient of this fundamental quality of information.

(g)Four qualitative characteristics that are related to both relevance and faithful representation.

(h)An item is not recorded because its effect on income would not change a decision.

(i)Neutrality is an ingredient of this fundamental quality of accounting information.

(j)Two fundamental qualities that make accounting information useful for decision-making purposes.

(k)Issuance of interim reports is an example of what enhancing quality of relevance?

E2-5 (Elements of Financial Statements)Ten interrelated elements that are most directly related to measuring the performance and financial status of an enterprise are provided below.

Assets Distributions to owners Expenses

Liabilities Comprehensive income Gains

Equity Revenues Losses

Investments by owners

Instructions

Identify the element or elements associated with the 12 items below.

(a)Arises from peripheral or incidental transactions.

(b)Obligation to transfer resources arising from a past transaction.

(c)Increases ownership interest.

(d)Declares and pays cash dividends to owners.

(e)Increases in net assets in a period from nonowner sources.

(f)Items characterized by service potential or future economic benefit.

(g)Equals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

(h)Arises from income statement activities that constitute the entity’s ongoing major or central operations.

(i)Residual interest in the assets of the enterprise after deducting its liabilities.

(j)Increases assets during a period through sale of product.

(k)Decreases assets during the period by purchasing the company’s own stock.

(l)Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

E2-6 (Assumptions, Principles, and Constraint)Presented below are the assumptions, principles, and constraint used in this chapter.

Instructions

Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once.

(a)Allocates expenses to revenues in the proper period.

(b)Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

(c)Ensures that all relevant financial information is reported.

(d)Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)

(e)Indicates that personal and business record keeping should be separately maintained.

(f)Separates financial information into time periods for reporting purposes.

(g)Assumes that the dollar is the “measuring stick” used to report on financial performance.

E2-7 (Assumptions, Principles, and Constraint)Presented below are a number of operational guidelines and practices that have developed over time.

Instructions

Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.)

(a)Fair value changes are not recognized in the accounting records.

(b)Financial information is presented so that investors will not be misled.

(c)Intangible assets are capitalized and amortized over periods benefited.

(d)Repair tools are expensed when purchased.

(e)Agricultural companies use fair value for purposes of valuing crops.

(f)Each enterprise is kept as a unit distinct from its owner or owners.

(g)All significant post-balance-sheet events are reported.

(h)Revenue is recorded at point of sale.

(i)All important aspects of bond indentures are presented in financial statements.

(j)Rationale for accrual accounting.

(k)The use of consolidated statements is justified.

(l)Reporting must be done at defined time intervals.

(m)An allowance for doubtful accounts is established.

(n)Goodwill is recorded only at time of purchase.

(o)A company charges its sales commission costs to expense.