Exam 2: Financial Reporting Theory

The economic entity concept stipulates that an entity will measure and report economic activities in monetary units.

Identify the element, and whether it is point-in-time or period-of-time.

Verifiability is a characteristic of faithful representation.

The conceptual framework defines the objective of financial reporting as providing financial information that is useful to existing and potential investors, lenders, and other creditors in making decisions.

According to the expense recognition principle in U.S. GAAP, firms recognize expenses when only one requirement is met: an asset has a reduced future benefit or when a liability is incurred or increased without an associated economic benefit.

Purrfect Pets, Inc. provides animal daycare for $29 per day. Customers buy three month packages, which provide 15 days of care per month. In January they received cash payments from 10 customers. For the month of January, they will recognize ________ of revenue under the cash basis, and ________ of revenue under the accrual basis.

In using fair value as a measurement for assets, a company ________.

List the active phases in the FASB conceptual framework project.

Complete the following table - identify which fundamental characteristic and which attribute are indicated in each independent scenario. Scenario Fundamental Characteristics Attribute Moss Inc.'s accountant has verified that all equipment has been depreciated according to the company's depreciation schedule. Cross \& Grant Company includes in a note all relevant details relating to the company's equipment - including depreciation method, estimated useful life, historical cost, and accumulated depreciation. Excellent Foundation discloses plans to dispose of a major operating segment. TLR Studios discloses information relating to a pending lawsuit that is likely to have an unfavorable outcome.

Identify the measurement base described in each definition, then indicate whether it applies to U.S. GAAP, IFRS, or both.

Under the principles of accrual accounting, revenues are considered earned when a company exchanges a good or service for cash or claims for cash.

Relevance is an enhancing characteristic of financial information.

Information has predictive value if it provides feedback about prior evaluations.

The FASB is currently working on the objectives of financial reporting and presentation.

Which of the following is not an underlying principle of accrual accounting?

Which of the following characteristics is fulfilled by separating current and noncurrent assets on the balance sheets?

A company reports financial results each year with the issuance of its income statement and balance sheet. Which underlying assumption is illustrated by this example?

Explain comprehensive income in terms of other elements of the financial statements.

Grinnell and Griffin (G&G) Company services fire protection systems at a fee of $200 per month. Clients pay in advance every quarter - and the company currently services 100 buildings. During the first quarter of the year, G&G collected all service fees on January 1; they also incurred the following expenses: $9,000 in January, $14,000 in February, and $8,000 in March. They paid half of the expense total in February and the rest in March, they did not pay expenses in January. Determine G&G's net income for each month, 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?

U.S. GAAP identifies ________ measurement bases used in financial reporting and IFRS identifies ________.