Exam 2: Financial Reporting Theory

Classification of assets on the company's balance sheet into current and long-term illustrates which assumption?

Yellow Pencil Company pays Helen, a staff accountant, a $10,000 a month salary. How should the salary be recognized as an expense?

Angelo's charges $280 per month for catering services. In the first quarter of the year, they collected $19,600. Fifteen customers pre-paid for three months of catering beginning in January, ten customers pre-paid for two months of catering beginning in February, and five customers paid for one month of catering in March. Using the cash basis of accounting, Angelo's will recognize ________ in revenue for January and ________ using the accrual basis.

Brendan's Alarm Company sells subscriptions to its monitoring service at a fee of $75 per month. Clients pay bimonthly, every two months. As of January 1, Brendan currently has 50 clients paying on an even month rotation (February, April, etc.) and 30 clients paying on an odd month rotation (January, March, etc.). Brendan incurs expenses each month for $100 in electric bills and pays the bill every other month. The next payment for utilities is due in February. Determine Brendan's Alarm Company's net income for each month for the first quarter of the year, as well as the quarterly total, under both the cash and accrual bases. Is the quarterly total the same? If it is different, what would account for this?

Information that is not accurate can be considered faithfully representative.

The ________ justifies the use of depreciation on buildings.

Afternoon Dessert's Inc. reported revenue of $200,000 in its cash basis income statement for the year ended December 31, 2018. Additional information from the books: Accounts receivable December 31, 2017 $10,000 Accounts receivable December 31, 2018 5,000 Prepaid subscription in 2018 1,000 What would Afternoon Dessert's revenue be under the accrual basis of accounting?

U.S. GAAP and IFRS identify the same three point-in-time elements.

Under the U.S. GAAP, which of the following is not an approach used to determine when to report an expense?

Who are the primary users of financial information? Discuss how FASB and IASB take them into account.

________ characteristics distinguish useful financial information from information that is not useful.

In the conceptual framework, what are the two types of qualitative characteristics of financial information?

U.S. GAAP does not allow companies to prepare financial statements using a cash-basis system.

________ means that a group of reasonably informed financial statement users are able to reach a consensus decision that reported information is a faithful representation of an underlying economic event.

U.S. GAAP and IFRS identify the same seven period-of-time elements.

Information is relevant if it reliably depicts the substance of an economic event.

Southern Light Container Corp. charges $105 per month for a storage unit. In the first quarter of the year, they collected $5,145. Ten customers pre-paid for three months rental in January, seven customers pre-paid for two months rental in February, and five customers paid for one month rental in March. Using the cash basis of accounting, Southern will recognize ________ in revenue for February and ________ using the accrual basis.

Quoted prices in active markets are the measure of fair value that is neither the most observable nor the least observable.

All of the following are components of the conceptual framework for financial reporting except ________.

The purpose of the conceptual framework is to assist standard setters in developing and revising accounting standards.