Exam 2: Financial Reporting Theory

Krump's Pie Company reported revenue of $500,000 in its accrual basis income statement for the year ended December 31, 2018. Additional information from the books: Accounts receivable December 31, 2017 $150,000 Accounts receivable December 31, 2018 310,000 Uncollectible accounts written off during 2018 20,000 What would Krump's revenue be under the cash basis of accounting?

Which of the following best characterizes the current situation concerning revisions to the conceptual framework?

Which of the following is not one of the four general recognition criteria under U.S. GAAP?

________ is the amount of cash that the firm actually paid to acquire an asset.

Depreciation expense is recognized over time and systematically allocated over the periods of use of the related asset. When depreciation expense is recognized, what related balance sheet line item is also impacted?

Comprehensive income is the residual interest in the assets of an entity that remains after deducting its liabilities.

The going concern concept is explicitly stated in the IFRS conceptual framework but is only implicit in the U.S. GAAP conceptual framework.

Sydney & Caesar Law Firm uses the accrual basis to keep their accounting records. During 2018, they collected $460,000 from clients. On December 31, 2017 they had accounts receivable of $50,000. On December 31, 2018 they had accounts receivable of $70,000 and unearned revenue of $27,000. Using the accrual basis, how much is Sydney & Caesar Law Firm's service revenue for 2018?

Freddie's Fish Store maintains saltwater aquariums for office buildings in Anchorage. The following events occurred during the first two months of 2018. For each event, determine the revenue or expense under the cash and accrual bases of accounting. a. In January, Freddie's purchased a new industrial vacuum for cleaning tanks - it is expected to last 5 years, and cost $5,000. b. In January, Freddie's collected $30,000 prepayment for cleaning services to be completed during January and February. c. In February, Freddie's signed a new client, collecting $6,000 for six months of services. d. In February, Freddie's paid its bimonthly utility bill of $500 for two months of utilities. The bill covers the current and prior months. They are always billed this amount and are paid at the end of every two months.

Under U.S. GAAP, revenues are considered ________ when the seller has accomplished what it must do to be entitled to the revenues.

Angelo's charges $240 per month for catering services. In the first quarter of the year, they collected $16,800. 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 February and ________ using the accrual basis.

The economic entity concept ________.

Which of the following is a period-of-time element?

Frank Smith is a student getting his degree in business administration. He does not like his accounting class very much, and doesn't understand why he needs to study accounting - stating "I'm never going to be an accountant - why do I need to know this?" Explain to Frank why it is important for business students to learn about accounting and give examples.

Axe Furniture and Accessories Inc. sold an oak custom-designed harvest table for $4,000 on July 31, 2018. The wood, labor, and overhead costs of $1,200 were incurred during the three months leading up to the sale (May, June, and July). Under the expense recognition principle, which of the following statements would be true?

________ accounting measures noncash transactions.

Financial capital maintenance refers to the concept that capital is viewed in terms of ________.

The process of reporting an economic event in the financial statements is known as ________.

John's Shoe Store reported revenue of $375,000 in its cash basis income statement for the year ended December 31, 2018. Additional information from the books: Accounts receivable December 31, 2017 $50,000 Accounts receivable December 31, 2018 75,000 Deposits on custom orders in 2018 10,000 What would John's Shoe Store's revenue be under the accrual basis of accounting?

Under U.S. GAAP, the conceptual framework overrides accounting standards.