Exam 2: Financial Reporting: Its Conceptual Framework

Distributions that are paid to owners would affect both the

Similar to the constraints in the FASB's qualitative characteristics, the joint IASB/FASB boards have identified two constraints including

Information about comprehensive income is useful to external users for all of the following purposes except

Presented below are five inappropriate accounting procedures that are being used by the Devin Corporation. a. On the yerr-end balance sheet, DevinCorporation reported its inventory at market value, which was greater than cost. As a result of this proce chue, a gain was recogrized on the company's income statement. b. Mrs. Devin, the president of the company, purchased an aut omobile for her son using the company's money. The company's accountant recorded the expenditure as salaries expense. Devin Carporation reported income from operations of $\$ 5,000,000$ for the current year. During the year, Devin settled and paid a $\$ 5,000,000$ class action lawsut against the company resulting from damages incurred from the sale of defective products. The settlementwas reported as a miscellane ous expense with no footnotes provided. d. Devin Corporation is going to issue additional common stock next year. In order to improve its income, the company switched from the LIFO inventory cost flow method to FIFO. The company did not disclose the accounting change. Comparative finencial statements were prepared. e.The company made $\$ 3,000,000$ of expenditures to expand a building that originally cost $\$ 5,000,000$ . The expenditures are expected to benefit operations over the building s remaining useful life of ten years. The expencitureswere expensed as maintenance. Required: For each of the above items, list the accounting assumption(s), convention(s), or principle(s)that is (are)being violated.

The joint IASB/FASB qualitative characteristics Exposure Draft identifies a logical order in which to evaluate the qualities.That order (first, second, third)is

Using the straight-line method to amortize patents is an application of expense recognition using

The task of developing the conceptual framework was so enormous that the FASB had to divide it into several projects. Required: Identify each of the projects by name and provide a brief description of their results.

Representational faithfulness is a relationship between the reported accounting measurements or descriptions and the economic resources, obligations, and the transactions and events causing changes in these items.This is important because the

A list of statements follows: a. $\underline{\quad\quad}$ on $\underline{\quad\quad}$ provides a measure of overall company performance. b. $\underline{\quad\quad}$ is the uncertainty or umpredictability of the future results of a company. c. $\underline{\quad\quad}$ is the ability of a company to take effective actions to change the amounts and timing of cash flows. d. $\underline{\quad\quad}$ is the term used to describe how quickly a company can convert its assetsinto cash to pay a liability. e. $\underline{\quad\quad}$ refers to the ability of a company to maint ain a given physical level of operations Required: Fill in the words necessary to complete the statements.

Accrual accounting relates the financial effects of a company's transactions

The IASB/FASB tentative joint conceptual framework includes two "fundamental qualitative characteristics" that must be present for financial reporting information to be useful. Required: Name and describe the two joint conceptual framework fundamental characteristics.

The FASB divided its conceptual framework activities into several projects.Which of the following was not one of those projects?

Which qualitative characteristic is an ingredient of relevance?

The CFA's Comprehensive Business Reporting Model argues that certain key weaknesses in the current financial reporting model exist.The weaknesses include all of the following except

Two constraints mentioned by GAAP on qualitative characteristics are

The accounting projects portion of the FASB's conceptual framework project deals with

The joint IASB and FASB boards identified several "enhancing" characteristic of financial information including

FASB suggests that revenues are considered to be earned

According to GAAP, which is not a specific objective?