Exam 2: Financial Reporting: Its Conceptual Framework

A constraint mentioned by GAAP on qualitative characteristics is

When investors and creditors make investment and credit decisions, they need information to assist them in assessing future cash receipts. Their focus is on assessing the potential of generating

A list of statements follows: a. GAAP states that the two primary qualitative characteristics that make accounting information useful for decision-making purposes are________ and____________. b. Corporations prepare quarterly financial statements in order to help achieve ______, an ingredient of the primary quality of relevance. c. Expensing the purchase of waste paper baskets that have a three-year estimated useful life at the date of acquisition is a permissible procedure according to the______________ constraint. d. The three components of relevance are ____,___________, and _____. e. is the overall qualitative______characteristic to be used in judging the quality of accounting information. Required: Fill in the words necessary to complete the statements.

The task of developing the conceptual framework was so enormous that the FASB had to divide it into several projects. Required: A specific objective of financial reporting is to provide information about a company's economic resources and the claims on the company. In what ways is this information useful to external users?

The first part of the conceptual framework project had to do with establishing which projects?

Describe the basic nature of the three expense recognition methods. Provide two examples of each.

At lunch recently, two accountants were discussing the merits of the FASB's conceptual framework project, which resulted in the publication of seven Statements of Financial Accounting Concepts and required more than ten years of effort. One accountant thought the effort was a waste of resources, since accounting was unlike physics, chemistry, and biology, where natural laws apply. The other accountant thought the effort was very valuable. He stated that "accounting, like any other discipline, benefits from having a coherent theory." Required: Write a brief essay that discusses the advantages that are derived from the existence of a conceptual framework for financial accounting and reporting.

Which of the following statements regarding financial flexibility is true?

According to GAAP, which is not a specific objective?

What three phases were active under the Joint FASB and IASB convergence project but were put on hold to focus on other convergence topics?

Define the following terms as they relate to decision usefulness, the ultimate objective of accounting information. a. Relevance b. Predictive value c. Confirmatory value d. Materiality

The joint IASB and FASB boards identified several "enhancing" decision useful characteristics of financial information including

What sources of information used by external decision making are directly affected by existing FASB standards?

Which qualitative characteristic is an ingredient of relevance?

Presented below are five inappropriate accounting procedures that are being used by the Playground Equipment Corporation. a. On the year-end balance sheet, Playground Equipment Corporation reported its inventory at market value, which was greater than cost. As a result of this procedure, a gain was recognized on the company's income statement. b. Mrs. Devlin, the president of the company, purchased an automobile for her son using the company's money. The company's accountant recorded the expenditure as salaries expense. c. Playground Equipment Corporation reported income from operations of $5,000,000 for the current year. During the year, Devlin settled and paid a $5,000,000 class action lawsuit against the company resulting from damages incurred from the sale of defective products. The settlement was reported as a miscellaneous expense with no footnotes provided. d. Playground Equipment 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 financial 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 expenditures were expensed as maintenance. Required: For each of the above items, list the accounting assumptions), or principles) that is are) being violated.

What are five types of information that are helpful in accessing the amounts, timing, and uncertainty of future cash flows?

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

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

FASB's financial reporting model identifies which specific financial statements?